Goodbye Rebates!

Rebates are one of those practices that I’ve hated for years as have others. Knowing right from the get-go that it was a scheme to either delay payment (use the float on our cash), keep the cash from the boneheads that didn’t send in the rebate forms and — like a good insurance company does — simply deny the claim on a technicality which further lowers the percentage of people willing to fight you for a few bucks. (Interesting study in HTML or PDF).

So I was delighted to crack open the Minneapolis Star/Tribune this morning to this article (free reg required) about what my hometown consumer electronics behemoth is doing. It says in part, “In response to customer complaints, Best Buy Co. Inc., the world’s largest electronics retailer, promised Friday to eliminate mail-in rebates within two years. Best Buy’s rivals, including Circuit City Stores and CompUSA, are expected to follow suit.” Crack open the champagne!

Here’s what you might be missing about this announcement though….some insight as to why Best Buy would be willing to give up what feels to the consumer as ill-gotten gains from rebates.

The context of this article is a separate one in the same issue of the paper (though they didn’t refer to one another) which discusses the success of  Best Buy’s “customer centricity” model. The article mentions, “As part of the customer centricity strategy, Best Buy identified five customer segments that are among some of the company’s most profitable customers. Best Buy tailors a store’s products and service to target one or more of these customer segments, depending on which ones shop there.” Think of Web commerce-like personalization of the customer experience focused on the bricks-n-mortar crowd (though their approach is still highly generalized by broad customer segments) and the deployment of new store strategies (Best Buy is planning to convert all 830 of its U.S. stores within three years to this new model).

Best Buy has undoubtedly learned that — even though rebates add to the bottom line — focusing on the customer experience and targeting directly to profitable ones yields significantly greater profits than does angering them en masse. Though you might say, “Duh!” as though this is brain-dead obvious and simple, in-store personalization to achieve profits is *really* hard since you can’t re-orient and re-display atoms in a physical location like you can do it instantly (and for each person I might add) with bits on the Web.