Getting Visibility on Rebate Liability
 

Estimating liability on consumer rebates can be one of the more daunting tasks facing manufacturers today – especially for the sponsors who have little or no experience in the category. So many factors influence a consumer’s propensity to participate in rebate offers that it is virtually impossible for most marketing and financial managers to accurately predict their outcome.  If you budget the correct amount of funds for every offer, you need not read further. If not, you may want to continue.  One of the reasons estimating rebate liability is so challenging is due to the individual factors and unique combination thereof that compel consumers to participate.  Those factors include, but are not limited to, the following: Original purchase price of item or service Rebate amount and percent of purchase price Duration of offer Time of year Media (where and how it is advertised – POS, on-pack, in-store, online) Circulation (how many offer forms, or mail-in certificates are circulated) Presence of television, radio, internet or print support Competitive offers in market during this promotional period Eligibility restrictions Market share of the product being promoted Retailer support (feature or in-ad) Channel through which the majority of the product is sold Proof-of-purchase requirements Quantity of purchases required to qualify Requirement to purchase a related product or service (bundled rebate) Ease of participation

Focused Leadership, Continued Excellence The Path Less Costly Check 21's Impact on Returns Processing                       Spring 2005 Check Electronification: Keys to New Efficiencies Fall 2004 Back Office to the Future: Check 21 and Back Office Conversion Summer 2004 Taking the Admin Out of Your Returns: Introducing MICRefine™ Spring 2004 Reconciling ARC with Check 21 Fall 2003 Check 21 Becomes Law, Invites Big Questions

Estimating accurately is not only common sense for fiscal responsibility – it is also a critical component of properly budgeting in advance. For instance, the Task Force from the Financial Accounting Standards Board recently recommended that “If the amount of future rebates or refunds cannot be reasonably and reliably estimated, a liability (or “deferred revenue”) should be recognized for the maximum potential amount of the refund or rebate (that is, no reduction for breakage should be made)”. That recommendation may be a considerable burden on the marketing budget, so it is strongly suggested that you use the tools available to you and seek the expertise required to estimate your rebate liability as accurately as possible in advance. At the minimum, the analytics required for review will consist of the following:  Any known promotional history for previous similar offers Quantity of mail-in certificates in circulation for this event Number of products anticipated to be sold during this promotion period Duration of the rebate period Other influencing factors One of the most frequently overlooked tools is to compare the metrics derived from the following:  Quantity of mail-in certificates distributed times assumed response rate Quantity of products sold times estimated percent of those submitted for rebates If the quantities extrapolated from those two calculations are close, the likelihood of accuracy of your prediction will have risen dramatically. Remember that the percentage of responses to any given media (take-one pads, on-packs, in packs, register generated certificates) will not only vary on their own merit, but can also be dramatically affected by other support. For example, if a retailer chooses to feature a product, and then advertises a compelling “net after rebate price”, the response rates for each medium can rise considerably. There can also be an upswing if the rebate is mentioned on the internet – on your own web page or any of your channel partners’ sites. And although past history can be a good guide- it is only that. Access as many internal stakeholders as possible (and outside counsel if warranted) to be certain you are using the appropriate formulas and considering all of the variables that may influence the consumers’ propensity to respond to your offers. To inquire about an initial consultation on this subject, please feel free to contact the author for additional information.   Hal Stinchfield, President and Founder of Promotion Management Group, is an independent consultant specializing in improving both the efficiency and the effectiveness of rebates and other sales promotion initiatives. He has been providing rebate management, sales promotion, and fulfillment consultation for over 25 years and can be reached at (952) 404-1915, or via e-mail at: hal_stinchfield@att.net.

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