Discounting Rebates

Nov 30, 2008 by

Thanksgiving weekend is associated with a special tradition for retailers; Black Friday, the day after Thanksgiving that begins the Christmas shopping season. While I always love a deal, there are some deals that I almost always pass up: those involving rebates.

Why the rebate phobia? Simply, because I have had rebates go wrong too many times, and have little recourse when they do. Rebates typically require the purchaser to remove the UPC from an item’s box, rendering it unreturnable. Furthermore, the long window it takes the company to respond ensures that the rebate is over by the time the rebate is contested. Finally, the time and aggrevation required to follow through on unreceived rebates is often worth more than the rebates themselves. For all these reasons, the only rebate that I like is the instant rebate.

I would like to propose a formula:
True Rebate Value = (Face Rebate Value * Probability of Receipt without Intervention) + ((Face Rebate Value – Intervention Cost) * (Probability of Receipt with Intervention))

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1 Comment

  1. Anonymous

    Excellent formula! I think it might be cool to add a risk-aversion term. Introducing probabilities adds variance which should decrease the value of the rebate – to the rational investor, at least.

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