Executive Summary

Although rebates offer an important and popular promotion tool in retailing, little research has investigated whether their presentation format can influence consumers’ evaluations of and purchase intentions toward products featured in rebate ads. Retailers generally use two different rebate ad formats: one that transparently shows both before- and after-rebate prices (hereinafter referred to as the BF; for instance Staples frequently uses this rebate presentation format) and the other that displays the after-rebate price in relatively large print and the before-rebate price in small print (hereinafter referred to as the AF; for instance Best Buy frequently uses this rebate presentation format). Popular practice among retailers seems to emphasize the after-rebate price more than the rebate amount or the before-rebate price (i.e., the AF), presumably because the lower after-rebate price better catches consumers’ attention, therefore increasing the demand.

However, the use of the AF can backfire if consumers perceive the rebate presentation format as more deceptive, which can lead to negative emotions that undercut the savings associated with the promotion and lower purchase intentions. The effect of the rebate format is even more important in terms of purchase intentions when the following three conditions occur.

First, when the rebate size is large (i.e., more than 15% of the regular price), the effectiveness of the AF versus the BF in increasing demand is, overall, significantly different. That is, in that case, the AF leads to more negative emotions, which adversely influence purchase intentions, than does the BF. A managerial implication is that retailers may be better off using the BF unless the rebate size is less than 15% of the regular price. Second, when consumers are less knowledgeable about the price (e.g., infrequently purchased items), the AF leads to lower purchase intentions than does the BF because consumers cannot accurately ascertain the savings from the rebate offer and thus more rely on negative emotions that stem from the AF when making purchase decisions. In contrast, when consumers are more knowledgeable about the price (e.g., frequently purchased items), they disregard negative emotions and focus on the savings that the rebate offer provides, regardless of the rebate presentation format. An implication is that when promoting a frequently purchased item, retailers do not have to worry about the presentation format. In contrast, when promoting an infrequently purchased item, retailers are better off using the BF. Third, when the processing time for the rebate is relatively long (e.g., six weeks), the AF leads to lower purchase intentions than does the BF because consumers feel cheated because they must wait for the rebate check to arrive long after the purchase although the rebate ad emphasizes the lower after-rebate price. An implication is that retailers need to shorten the rebate processing time if they do not want to worry about how to present a rebate offer.

Therefore, this research highlights the importance of understanding both emotional and rational responses to rebate presentation formats. Sales promotion influences sales by three routes: economic value (i.e., savings), informational content (e.g., lower quality perceptions induced by discounts), and emotional responses. It is well established that positive emotional effects primarily include hedonic benefits (e.g., entertainment of buying on good deals), whereas negative emotional effects are caused by the annoyance of dealing with coupons or restrictions, as well as regret about missing out on deals. This research demonstrates another important component of emotional responses: feeling cheated by the price presentation. Consumers feel cheated by the AF because they must pay the regular price instead of the price highlighted by the AF, make extra efforts to mail in the rebate form, and wait for several weeks to get their money back. Because rebates provide low hedonic benefits, negative emotional responses loom larger, especially when the savings from rebates are not appreciated due to either low price knowledge or a low rebate size.

The effect of the three routes depends on managerially controllable factors (e.g., promotion design), as well as the features of the target market. This research provides direct evidence of the effect of economic value and emotional responses on consumers’ deal evaluations, in conjunction with rebate ad formats and a target market feature (i.e., price knowledge).