by Joy Donovan - March 13th, 2024 - Faculty/Research
Marketing tools abound. From coupons to sales to advertising, consumers face an onslaught of forces influencing potential purchases.
“The goal of the paper is more to understand how the firms make the decision,” Mamadehussene said of his research paper. “What the rebate does is direct different consumers to assorted products. That’s the role of the rebate.”
The paper addresses theories and strategies behind corporations’ decisions both for whether to offer rebates and for which products. Documenting the behavior of the company had never before been studied in this way, he said.
In his research, Mamadehussene determined that firms most often do not promote their lowest priced products through rebates. What he learned was that, instead, firms use rebates to entice some consumers to buy higher-priced products. These company rebates lured buyers to choose an alternative, higher-quality product at what was a relatively low incremental price.
“I found a lot of instances where the lower-priced products were without rebates and only the higher-priced products were accompanied by rebates,” Mamadehussene said. “The goal of the rebate is not to convince the consumer to buy the product, but to trade up to a more expensive higher-quality product.”
Mamadehussene said examples of this were found often in home appliances and consumer electronics. His research detailed an example of Serta’s President’s Day sale with rebates offered for only select mattresses. Of eight available models, the three lowest-priced mattresses, ranging in price from $314 to $549, were being sold without a rebate. In contrast, mattresses priced from $1,009 to $3,499 were offered with rebates that ranged from $100 to $200.
Another example he cited involved Epson photo printers with retail prices ranging from $249.99 to $1,195. A $200 rebate was available for two printers priced at $799.99 and $1,195. Alternatively, none of the four lowest-priced models, costing from $249.99 to $349.99, were advertised with rebates.
His paper examined why this occurs. With a background in both economics and marketing, Mamadehussene studied the decisions these large, multi-product companies made.
“I found it’s optimal for the firm not to offer the rebate on the lower priced products,” the professor said. “The firm uses rebates to persuade a consumer to trade up to purchase a higher-priced product at a relatively low incremental price.”
This price discrimination, a selling strategy that charges customers differing prices for the same product, involves sellers trusting that customers will buy at varying prices. For his paper, Mamadehussene studied previous reports focused on how rebates can serve a price discrimination role when some consumers fail to redeem the promised incentive. Although this explanation may seem in conflict with those larger rebates, often amounting to hundreds of dollars, they are used often for small electronics and large appliances.
“I was thinking how a large rebate could serve for price discrimination,” he said. “Most of the research shows that coupons and rebates can serve a price discrimination role provided that some consumers don’t even bother to redeem them. These consumers pay full price. For the remaining consumers, the rebate is deducted and they effectively pay a lower price.”
“In this study, I analyze whether a firm can benefit from issuing rebates when consumers never fail to redeem them. I find that rebates that are always redeemed can still serve a price discrimination role,” he said. Although all consumers who buy a product with a rebate pay the same price (as they all redeem it), rebates enable the firm to segment the market. Consumers who have low redemption costs take advantage of the rebate to purchase a higher-quality product at a relatively low incremental price (after the rebate is redeemed), whereas consumers for whom rebate redemption is a hassle prefer to purchase products that do not require rebate redemption.
Mamadehussene, who has been at the Jindal School since 2020, is a native of Portugal. He earned his bachelor’s degree in 2008 and his master’s degree in 2010 at Católica Lisbon School of Business & Economics, a top European business school. In 2016, he received his PhD from Northwestern University.
His professional career combines economics and marketing, often focused on marketing and pricing policies from the firms’ perspectives. At UTD, Mamadehussene teaches the undergraduate principles of marketing course and a graduate course, “Marketing by Numbers.”
Mamadehussene’s only prediction for future use of rebates is that rebates will be seen more frequently via the internet, which will result in making the public more aware of their availability. He did have a firm conclusion, though, after conducting this research since 2018.
“The firm benefits for sure, but even the consumer can benefit,” he said.
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