Rebate and Voucher Program Introduction

Financial incentive programs usually include rebates or vouchers to induce customers to replace water wasting fixtures and appliances, or alter the customer’s purchasing decision when the customer has choices in the water efficiency levels of products to be purchased.   The most common items rebated for the residential sector are toilets, irrigation controllers, and high efficiency clothes washers.  Some water agencies offer rebates to commercial customers for: toilets, urinals, cooling tower controllers, irrigation controllers, laundry water recycling systems, etc.    The difference between rebates and vouchers; rebates provide money to the customer after the purchase is complete, vouchers act as coupons to provide a discounted price at the time of purchase.  There are distinct advantages and disadvantages to both strategies; the “best program” is determined by local conditions and water utility goals.

The cost of properly processing and tracking the either project usually varies from $7 to $35 per rebate/voucher.  This cost usually dictates the strategy be used for products that far exceed the cost of processing, and the water savings are great enough to warrant the cost.  There is usually high initial overhead cost ($25,000 to $100,000) to implement this program.  Due to high start-up costs, it is best to implement this strategy for large volumes of devices over several years.  A large portion of the start-up costs are to: design computer tracking system; design and print marketing materials; establish office space and equipment; recruit, hire and train administrative personnel; and establish banking procedures.  A well designed program can provide services for a variety of conservation fixtures and appliances, while maintaining choice in selecting the style of fixtures and appliances they desire.

Rebates are advantageous in that the water utility does not have to establish business relationships with the retailers.  The participant can select a product (usually from a pre-approved list) from the retail store of their choosing.  The rebate is a contract only between the participant and the water utility (or its administration contractor).  The disadvantage to rebates is the participants receive the rebate only after they have paid full price for the fixture or appliance.   The participants usually receive their rebate check within 2 to 4 weeks after they submit their rebate application.  Low-income customers are reluctant to participate because they do not have the ability to “float” the cash between the time of purchase and receipt of the rebate check.

Vouchers provide a distinct advantage in the eliminating the customers need to “float” the cash between the time of purchase and the receipt of the financial incentive.   The disadvantage is the water utility needs to establish a direct relationship with each store that accepts the voucher.   The stores need to collect the vouchers and periodically apply to the water utility to redeem the vouchers.  Essentially, the retail outlet provides the “float” of cash instead of the customer.  Some retailers are reluctant to accept this financial responsibility, and will not honor the vouchers.  This limits the participant in a selecting the store to purchase the product. 

It is important for the water utility to carefully evaluate the benefits and costs when determining the rebate/voucher value.  The financial incentive value must be high enough to induce the customers to buy a product they would not normally purchase.  When a consumer accepts the financial incentive for a purchase they would have made without the incentive, they are categorized as free-riders.   Free-ridership is a cost to a program without netting any benefits to the water utility.  On the other hand, a surprising quantity of consumers purchase products intending to apply for the rebate, but fail to ever submit rebate applications – the allows the water utility to gat a “free-ride” – obtaining benefits of conservation without expending funds.

For example, a $25 rebate for the purchase of a $900 clothes washer probably does not increase the sales of high-efficiency clothes washers.  The participants that apply for the rebate probably made the purchase for reasons other than the $25 incentive.  The water utility gave away $25 rebates without net benefit.   On the other hand, offering $300 rebates probably sways many more consumers into purchasing the high-efficiency clothes washers than would have occurred without any incentives offered.

Water agencies often use their avoidable cost from the projected water savings of the devices to guide them in determining the financial incentive levels offered.  This is not the only factor a water utility should use in setting rebate/voucher values.   The agency should determine if the financial incentives are to coerce a customer to replace an existing functioning appliance or fixture, or is the intent to sway consumer choice when the consumer is already shopping for a new appliance or fixture.   A $100 incentive has proven to induce millions of homeowners to replace old water wasting toilets with 1.6 GPF (6.1 LPF) models, mainly because the $100 will more than cover the cost of most new toilets.  Conversely, a $100 incentive will not likely induce a customer to spend $900 on a new clothes washer when the existing clothes washer is still functioning (though wasting water).  Therefore, most toilet rebate/voucher programs are designed to encourage “early” replacement of existing functioning toilets, and most washer rebate/voucher programs are designed to encourage the consumer to pay the extra money ($600 to $900) for a high efficiency washer rather than purchase a less expensive inefficient washer ($130 to $300).

Private enterprise will often promote a rebate program if the financial incentive is great enough.  Many toilet rebate programs (Los Angeles, New York, San Diego, etc.) spurred the growth of cottage industries by plumbers who facilitated a business around the rebate program.  The plumbers market the program (canvassing, newspaper ads, etc.) and offer new toilets for free or a small fee.  The customer assigns the rebate to the plumber; in exchange the plumber installs the toilet, and then submits the rebate application to the water utility.  This allows the customer to participate without the need to “float” the cash; the plumber provided the “float” instead.   This plumber marketing venture most often occurred when the toilet rebate value exceeded $75.

Rebate and voucher programs have proven to be a very effective tool to promote water conservation.  The advent of the federal 1.6 GPF (6.1 LPF) plumbing standard somewhat limits the market potential of toilet replacement programs, but the strategy is still valid for large parts of the US, and for new products throughout the nation.   The success of the program is determined by careful market research and overall program design.