Did Cash for Appliances Work?
It’s a huge success? It hasn’t gone anywhere? Actually, it’s a little of both.
Fifty states and six territories have launched Cash for Appliances programs since late last year. Each one had the same amount of money—about $1 per resident—but the results have been wildly different. Some states ran through their entire rebate budgets in hours; others can’t seem to give away their money. What’s been going on?
Cash for Appliances, modeled on (or at least nicknamed after) 2009’s Cash for Clunkers program, was funded as part of the $787 billion stimulus bill. Unlike Cash for Clunkers, the appliance rebate program wasn’t designed and administered by the federal government. Instead, the government directed $300 million to the 50 states (plus D.C. and several American territories), at a ratio of roughly $1 per person in each state. Each state then had the opportunity to design its own program within the general guidelines given by the government.
As you’d imagine with a lot of cooks in the kitchen, no two states designed their rebate program in the exact same way: rebate amounts, categories, eligibility, application process, and marketing plans have all differed. As have the results. Ten states had crushing consumer demand that caused them to run out of rebate funds within five days of the respective program start dates, with complaints of flooded call centers and crashing web sites. Thirteen other states still have desperate operators standing by and literally can’t give away their money.
Comparing Rebate Programs State by State
It’s not just a matter of some states having better deals than others. Take, for example, refrigerator rebates in Massachusetts, Minnesota, and California. The programs in all three states offered $200 rebates on efficient refrigerators. Massachusetts and Minnesota sold out in one day and two days respectively. California? Same rebate amount, but it took nine months for California’s Cash for Appliances program to close.
Across the country, the rebate categories and amounts are all over the board (see Table 1). So what attributes matter the most when it comes to determining whether a state program sells out quickly or not at all? The answers aren’t as straightforward as you’d think. We did some analysis to compare each of the programs to see what predicted their likelihood to sell out.
What Doesn’t Matter
It’s a little surprising what didn’t inspire consumers.
Average electricity rates. One of the biggest surprises in analyzing the state-by-state rebate data is that the average price of electricity in a state has almost no impact on how popular its Cash for Appliances program is. Consumers don’t seem to be thinking about this program in terms of its ability to save them money over the long term—otherwise, we’d expect to see the states that have much more expensive electricity selling out their rebate programs much more quickly than those that have relatively cheap power.
Nonappliance rebates. There are the shiny appliances (refrigerators, washers, freezers, and dishwashers), and then there are the boring systems (air conditioners, furnaces, heat pumps, water heaters, boilers, and solar water heaters). There’s almost no correlation between the number of boring categories that a state has rebates for, or the maximum amount of any of those rebates, and the speed at which the state has gone or is going through its Cash for Appliances budget. While we haven’t seen breakdowns for many states in terms of the numbers of each type of rebate that have been redeemed, this result indicates that most people aren’t being motivated by the number or dollar figures of nonappliance rebates.
What Matters a Little Bit
Some things gave consumers a little nudge.
Number of shiny appliance rebate categories. States can offer rebates in four basic appliance categories (refrigerators, freezers, dishwashers, and clothes washers). Generally speaking, the states that offer rebates in three or four of those categories are more likely to have run through their rebate dollars quickly than those that have offered rebates in fewer appliance categories.
Rebates don’t change consumer behavior very much. States that offer smaller rebates on more appliances have handed out their money faster than states that offer larger rebates on fewer appliances. This may mean that rebates aren’t successfully channeling consumers into buying specific appliances, but rather, are catching buyers who were already planning purchases.
In Pennsylvania, for instance, there are no rebates on basic appliances. All the rebates being offered in that state are for the behind-the-scenes systems for heating water and air (furnaces, boilers, and water heaters) – systems in the home that utilize far more energy than kitchen and laundry appliances. And yet Pennsylvania is one of the slowest states to use up their Cash for Appliances money—of its $11.9 million, it had given out only $2 million as of early July 2010. (Figure 1 shows how the highest and lowest states rank when it comes to speed.) Does that mean that Pennsylvania is failing in its Cash for Appliances program? Clearly, the program has not injected as much activity into Pennsylvania’s economy as it has into those of many fast states. But in the longer term, Pennsylvania’s rebate program should save its residents more money than the programs in states that offer appliance rebates only–saving more kWh per rebate dollar spent–if homeowners would just use the program!
Highest dollar amounts for shiny appliance rebates. If you exclude several outlying state programs, where very large appliance rebates are provided, but only to low-income (Kansas, Oregon) and disabled (Alaska) residents, there’s some correlation between the dollar amount of the largest appliance rebate and how quickly the program dollars run out, though not nearly as much as whether a program requires reservations.
What Really Matters
It’s not how much the rebates were for.
“Do you have reservations, Sir?” The number one predictor of whether a state rebate program sold out quickly didn’t have anything to do with how generous the rebates were. It actually turned out to hinge on the program’s design. Virtually all the fast states required consumers to reserve a rebate application before making a purchase. These states set up web sites and call centers that opened at a certain date and time, creating an event that turned into a feeding frenzy of activity, before closing down within days, or even hours.
Think of the lines around the block at your local Apple store each time a new version of the iPhone comes out. With the iPhone 4, everyone was standing in line for a reservation! Do you really think Apple’s product marketers could have been taken by surprise by consumers five times in a row (four iPhone versions and the iPad)?
Ten of the 17 fastest states required consumers to reserve a rebate before purchasing a qualifying appliance. Six others had hybrid programs which consumers could either reserve ahead of time or get the discount at the point of sale (if available at point of sale). Of the 15 slowest states, 11 had no reservation system, and 3 others had optional reservation systems. Basically, all the slow states used mail-in rebates after purchase.
For consumers, there’s not much we can advise them to do except to make calculated, rational decisions about the up-front cost of energy efficiency measures, the available rebates, and the three-to-five-year payoff. Of course, it’s been pretty well documented in recent behavioral economics research that most consumers don’t behave rationally. So how about this? At least make sure that consumers are aware of all the state, utility, and federal energy rebates and tax credits that you can stack together to pay for your projects. And if you’re not sure which projects are the best investments, EnergySavvy has an online energy analysis tool to help you figure it out.
For rebate program designers in government, utilities, or manufacturing, there are a few lessons that can be taken away from the results of our study.
- Create demand through scarcity by requiring consumers to make online reservations for new rebate programs. For rebate programs like those in Indiana and Pennsylvania (and many utility rebate programs across the country) that offer only nonappliance rebates, a potentially effective strategy to kick-start demand would be to relaunch the program with higher rebates for the same behind-the-scenes systems but require consumers to reserve their rebate on a specific launch date.
- Bundle shiny stuff (basic appliances) and boring stuff (HVAC systems) together to move more of the less exciting, but more energy-efficient, systems.
- Catch the already-upgrading crowd by offering rebates on a wide set of categories but only on the most efficient models in each category. The program may not be stimulating purchases that wouldn’t have happened anyway, but it can nudge consumers toward the most efficient products in each category.
The results we came up with are consistent with academic research on consumer behavior.
“The variable rates of uptake based on seemingly trivial factors such as creating a sense of urgency are further evidence that, when the goal is to encourage consumers to act in their best interest, giving them some reason other than pure rationality can be surprisingly effective,” says Michael I. Norton, associate professor of marketing at Harvard Business School. “Inserting some excitement into behaving well—in some sense, copying the way parents induce their children to eat their vegetables via airplane noise—should always be an important consideration for policymakers interested in encouraging behavior change.”
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The EnergySavvy team combines web expertise, online marketing experience, and energy efficiency experts from across the industry. Their mission is to make energy efficiency easy for homeowners.
To link to an updated version of this article online, go to www.energysavvy.com/blog/2010/07/19/cash-for-appliances-results-by-state/.
For more information on this report and analysis, contact Scott Case at EnergySavvy.com.
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