What is the point of cashback deals?

I’ve noticed more American-style “cashback” offers creeping into Australia catalogues recently. Most commonly, they’re attached to $850 laptops, which come with $100 cashback, to bring the laptop price down to $750.

Why can’t they just sell the laptop for $750? Can someone with some marketing knowledge explain to me what the benefit of making the consumer pay more for something that should cost less is?

I have read that manufacturers count on a certain percentage of people not redeeming their cashback, but surely that can’t be the only reason?

(Aside from my gripe about cashbacks, I must say it is AMAZING how good the $750 laptops are. Officeworks has a Compaq one on the front of its latest catalogue which is a 15.4″ widescreen, 60GB hard drive, 512MB RAM and CDRW/DVD combo drive. The only downer is the Celeron M 1.73GHz CPU, but that’s adequate for running XP and doing office tasks.)

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8 thoughts on “What is the point of cashback deals?

  1. Rob F

    Dan,

    There is a benefit of the cashback if you are lucky to have a salary sacrifice option via work. It works like this:

    You pay $850 via salary sacrifice(ie. before tax and is administered by employer) so you may end up paying a little over half. Then you get the $100 cash back and this then takes the cost down to less than half.

    So with salary sacrifice you pay:

    $850
    $425 – (tax saving)
    $100 – cash back
    $325 = actual cost

    Without the cashback you pay the $425.

    Note: changes in top tax rates are now less so my example will be out a little, the concept is still correct.

  2. Rob F

    Dan,

    There is a benefit of the cashback if you are lucky to have a salary sacrifice option via work. It works like this:

    You pay $850 via salary sacrifice(ie. before tax and is administered by employer) so you may end up paying a little over half. Then you get the $100 cash back and this then takes the cost down to less than half.

    So with salary sacrifice you pay:

    $850
    $425 – (tax saving)
    $100 – cash back
    $325 = actual cost

    Without the cashback you pay the $425.

    Note: changes in top tax rates are now less so my example will be out a little, the concept is still correct.

  3. Rob F

    Dan,

    My last post had an error,

    I should have added that if there is no cashback i.e. you salary sacrifice the $750 and you would pay approx. half – $375. The beneift being approx. $50

    hopefully you can explain it better if the conept makes sense

    rob

    rob

  4. Rob F

    Dan,

    My last post had an error,

    I should have added that if there is no cashback i.e. you salary sacrifice the $750 and you would pay approx. half – $375. The beneift being approx. $50

    hopefully you can explain it better if the conept makes sense

    rob

    rob

  5. Robert

    The Cashback scheme is run by a national group that sells these vouchers to retailers so than can offer cashback vouchers.

    I bought a bike over 2 years ago and got my cheque back the other day. It was a cheque for $10. Apparantly its “up to” $100 but I didn’t notice that on any catalogue and the guy i bought my bike from thought didn’t know that either.
    Apparantly they put the money they get from retailers into a pool fund, wait two years, take a % for themselves and then divide up the rest. $100 sounds too good to be true becuse it’s never going to happen.
    (I spent $8 on 2 registered posts s I ended up with a $2 profit)

  6. Robert

    The Cashback scheme is run by a national group that sells these vouchers to retailers so than can offer cashback vouchers.

    I bought a bike over 2 years ago and got my cheque back the other day. It was a cheque for $10. Apparantly its “up to” $100 but I didn’t notice that on any catalogue and the guy i bought my bike from thought didn’t know that either.
    Apparantly they put the money they get from retailers into a pool fund, wait two years, take a % for themselves and then divide up the rest. $100 sounds too good to be true becuse it’s never going to happen.
    (I spent $8 on 2 registered posts s I ended up with a $2 profit)

  7. Tim Gibson

    Commercially there is a lot of motivation. They typically restrict the mail in rebate offers to authorised suppliers etc. It gives an ‘exclusive’ air to the deal and in my opinion is more geared towards lubricating the manufacturer distributor relationship than manufacturer consumer one. And there is always the obvious aspect of marketing hype that it generates – and the basic consumer apathy aspect where the 80/20 rule applies – so they win and win on the people who dont bother claiming it but are sucked in by the hype. There’s also the aspect of devaluing their product. So offer it at $100 less and people psychologically think hmm cheap and nasty.

    Having said all of that – I hate them. They’re archaic and there are far better technological solutions around to do the same thing.

    Where they can start being good value is where you can combine them with other things, effectively playing the merchant and manufacturer at their own game. Because its the manufacturer that gives the rebate you can double up by leveraging offers from the merchant. On the site I’m involved with we’ll often search down the mail in rebate offers and see whether we can combine the lowest priced ‘authorised’ merchant with a discount code or other offer. By doing this you can sometimes find the item in question at a blindingly good price.

    I also think a lot of it comes down to savvy consumer vs stupid consumer. As commerce on the internet matures so does the ability for consumers to reverse the situation where a merchant or manufacturer tells the consumer that something is a great value deal because of things like mail in rebates and the consumer blindly swallows it. Just check out any of the deals sites in the UK or US to see very fast moving examples of this in practice.

    So anyway – in conclusion to this epic. I hope to see these sort of silly marketing tools dissapear eventually in favour of realistic pricing ( but I dont think its ever going to happen )

  8. Tim Gibson

    Commercially there is a lot of motivation. They typically restrict the mail in rebate offers to authorised suppliers etc. It gives an ‘exclusive’ air to the deal and in my opinion is more geared towards lubricating the manufacturer distributor relationship than manufacturer consumer one. And there is always the obvious aspect of marketing hype that it generates – and the basic consumer apathy aspect where the 80/20 rule applies – so they win and win on the people who dont bother claiming it but are sucked in by the hype. There’s also the aspect of devaluing their product. So offer it at $100 less and people psychologically think hmm cheap and nasty.

    Having said all of that – I hate them. They’re archaic and there are far better technological solutions around to do the same thing.

    Where they can start being good value is where you can combine them with other things, effectively playing the merchant and manufacturer at their own game. Because its the manufacturer that gives the rebate you can double up by leveraging offers from the merchant. On the site I’m involved with we’ll often search down the mail in rebate offers and see whether we can combine the lowest priced ‘authorised’ merchant with a discount code or other offer. By doing this you can sometimes find the item in question at a blindingly good price.

    I also think a lot of it comes down to savvy consumer vs stupid consumer. As commerce on the internet matures so does the ability for consumers to reverse the situation where a merchant or manufacturer tells the consumer that something is a great value deal because of things like mail in rebates and the consumer blindly swallows it. Just check out any of the deals sites in the UK or US to see very fast moving examples of this in practice.

    So anyway – in conclusion to this epic. I hope to see these sort of silly marketing tools dissapear eventually in favour of realistic pricing ( but I dont think its ever going to happen )

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