Rebate Bait Hooks Some Customers

Caroline E. Mayer Washington Post Staff Writer
May 5, 2000; Page E1

It was the $400 rebate offer that prompted Lory Lacsamana to buy a computer. "It seemed like too good a deal to pass up," said Lacsamana, a retired National Park Service employee who lives in San Francisco. So last August he bought an $800 computer, and to get the $400 rebate he signed up for three years of Internet access through CompuServe. That was when his troubles began.

As Lacsamana recently recalled, CompuServe first told him he had not sent in the proper papers to get the rebate. Then a company official sent him e-mail telling him he didn't qualify for the rebate--because he didn't have a computer. Lacsamana read that message on the very computer he had purchased in August. "I wrote back and asked them how I could be talking to them on my computer without a computer," Lacsamana said.

Finally, in January, after dozens of phone calls, CompuServe told him a check was in the mail. But it never came. A few weeks ago, after more desperate phone calls to the company, Lacsamana canceled his CompuServe service. "I just ate the $400, I was so upset with the rebate runaround."

Lacsamana's tale of woe is far from unique. About 500 consumers have reported similar difficulties in obtaining CompuServe rebates to Florida lawyer Byron S. Petersen, who recently filed a class-action suit against CompuServe.

The complaint, filed in a Florida circuit court, accuses the online service of breaching its contracts with consumers by failing to pay rebates or failing to send them in a timely manner. The suit, filed on behalf of one Florida couple who had to wait 25 weeks before receiving a rebate, asks CompuServe to pay rebates plus interest to all consumers who were not paid in a timely manner.

Tricia Primrose, a spokeswoman for Dulles-based America Online, which owns CompuServe, said the company has sent out more than 700,000 rebates since the offer began last August. "We say we're going to get the check back within eight to 10 weeks, and we've had some instances where we haven't met that particular time period. The reasons vary--sometimes consumers send incomplete information. . . . But the vast majority of checks have gone out without incident and in a timely way."

A judge has yet to certify whether the lawsuit is a valid class action. But its filing and subsequent publicity once again highlight many of the problems that occur after consumers buy products because of rebate offers. These deals have become a standard marketing tool for almost all computer equipment: Pick up an ad and all sorts of rebate "savings" are touted, making the cost of PCs very low--some sell for the "after-rebate" price of $129.99.

But many industry and consumer officials say the rebates have also become a constant source of aggravation for consumers. "It is an evergreen area of complaint activity," said Edward J. Johnson, president of the Washington area's Better Business Bureau.

Michael Erbschloe, vice president of research for Computer Economics, a Carlsbad, Calif.-based technology consulting company that runs an Internet shopping complaint hot line to monitor consumer trends for its clients, said his company has noted that "customer service of rebates seems to get perpetually worse."

"When consumers try to apply for a rebate," he said, "they get trapped in what we call a 'rebate jungle.' "

Erbschloe said many have a hard time just getting the necessary paperwork to apply. "They have to dig through 9,000 rebate coupons in the store to get the right one. Then they may fill out the paperwork, only to be told that their rebate coupon doesn't exactly match the product they bought. Or they don't read the fine print--which looks like a disarmament treaty--and fail to meet some of the rebate requirements. Sometimes they may do everything right but they still never get the rebates," Erbschloe said.

He has no kind words for rebates: "They are just a marketing ploy; there's no reason why a company can't just discount prices, but they don't want to because they know far less than half the people who buy the product will actually get a rebate."

Precise redemption numbers are unclear. Some industry studies indicate that they run as high as 80 percent for any rebate over $50--but for rebates as small as $2, redemption rates usually are no more than 2 percent.

As consumer complaints grow, so, too, does the attention of government regulators. The Florida Attorney General's Office launched its probe of the CompuServe rebates after receiving about five dozen complaints since last summer.

"That's a lot of complaints in a short period of time," said Stephen A. LeClair, an assistant attorney general in the Florida office.

Officials at the Federal Trade Commission declined to comment on the CompuServe rebate but indicated they were also looking at companies that fail to process rebates on time. "We've brought a number of cases in the past and expect to be bringing more cases in this area in the future," said Joel Winston, the FTC's assistant director for advertising practices.

Winston said the commission was particularly concerned about these Internet-provider rebates. "There's nothing illegal about them--as long as consumers understand the restrictions and conditions." But Winston noted that the ads always come with "big teaser prices," while "the restrictions are buried in microscopic print, sometimes pages away from where the product is being sold."

As a result, he said, many of the ads are "not adequately disclosing" the full price. For instance, the $400 rebates offered to buyers who sign up with an online service usually require a three-year contract--which at a cost of $20 or more a month adds up to more than $700 in Internet access charges. Canceling the service may subject customers to penalties, as well as forfeiture of the rebate, Winston added. In other cases, the ad may fail to note that it may require a long-distance call toconnect to the Internet service.

Either way, these added costs may not make the rebate as valuable as consumers think. Internet service can be obtained for much less than $20 a month, and some companies offer access for free.

At the same time, some consumers have complained to Florida Attorney General Peterson that to qualify for the rebate, they are paying $21.95 a month--$2 more a month than what CompuServe would charge for the same service if they didn't want the rebate.

AOL's Primrose said there were differences between the two services, but she didn't elaborate. But when a customer service employee at CompuServe's toll-free telephone number was asked what the difference was between the $21.95 and $19.95 service, she said it was "the same service." The only difference, she added, was that the cheaper option didn't come with a rebate; it was also a month-to-month plan that the consumer could cancel any time, unlike the costlier plan, with which an early cancellation could incur a penalty.

The FTC's Winston said the commission wants to make sure that "any important restrictions on rebate offers are not buried in fine print, but made clearly and conspicuously, up front, where consumers will notice them."

Even with more disclosure, industry officials are certain rebates will continue to be offered--because they work. Just look at how many new customers CompuServe has drawn in with its rebates; when AOL bought the Internet service provider in February 1998, CompuServe had only 2 million members, a number that was dropping. Now, thanks in part to the rebate program, the service has more than 2.7 million subscribers, Primose said.

Similarly, Microsoft's Internet service, MSN, has reported 500,000 net additions between December 1999 and March 2000, "the best growth in recent memory." And the key factor, company officials say, was the rebate program.

"Our research shows that an ad featuring a 'price after rebate' clearly sways the customer into looking at what products to buy," said David Goldstein, president of Channel Marketing Corp., a Dallas marketing and research firm specializing in technology products. But Goldstein said the nature of the rebates may change over the next few months as companies offer different versions of them.

He pointed to MSN's current "six months free" promotion as an example. In that program, a consumer is billed only for the last half of a one-year subscription.

"We'll see a lot of testing of other offers," Goldstein said. "In the end, the consumer will tell us which they prefer; they will determine wither rebates stay or not."

The numbers from MSN indicate rebates are here to stay--97 percent of its customers are opting for a three-year contract over the offer of one year with six months free.

But Lacsamana has a different opinion after his experience with CompuServe. "I would never buy with a rebate again," he said. "Never ever."