October 20, 2008
BrainTrust Query: What’s the best approach to return policies in a dicey economy?
By Doron Levy, President, Captus Business Consulting
My dishwasher has a temperament. For years we’ve gotten the best results from a tablet type detergent. But while on a recent trip to Costco, I saw the leading name brand liquid at a good price and decided to see if perhaps it would make things easier on my dishwasher. My reward for considering my dishwasher’s wellbeing was hardened spaghetti stains and spotty silverware.
OK, OK, I get it. So now what do I do with this 1.5 liter bottle of liquid dishwasher detergent that I purchased so hastily? Frantically, I looked through my receipts but could not find the one from Costco. “Not to worry,” I said to myself. “It’s Costco. They take everything back.” And sure enough, they were able to bring up my transaction electronically and cheerfully returned the purchase in cash. The item had no receipt, was used twice and they asked no questions. This is not a plug for Costco but it got me thinking about our current economic situation and the trend to towards clamping down on returns.
Retail refund policies have been an ongoing concern for retailers over the last decade. The explosion of fraudulent refunds has driven retailers toward policies and guidelines designed to protect the retailers themselves. Yes, we need to combat refund fraud. Yes, we must educate and control habitual returnees. However, we must also make sure our customers feel confident about their purchases.
Friends always ask me where the best places to buy things are and I always take into account the chain’s after-service policy when making a recommendation. Buying a plasma screen from Joe Schmo who doesn’t even want to talk to you after you leave the store is not the best way to have a great plasma TV experience. But a chain that will take back a used product because it didn’t work or, more importantly, did not meet the customer’s expectations, is serious about maintaining customer loyalty.
Giving sales associates the tools to expedite the refund process is also critical in providing a smooth transaction for the customer. The end goal is for the customer to think positive thoughts about the brand and, in this retail landscape, getting the customer to think positive thoughts is how we overcome the consumer confidence stigma.
Discussion Questions: How do you see the current economy affecting return/refund policies? How do you balance the need to control fraudulent refunds with the danger of turning off honest customers? Are there best practices, such as the ability to bring up transactions quickly without a receipt, that retailers should adopt?
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A retailer’s refund desk is probably the most intimate contact the consumer has with a merchant. This should be viewed as a means of making friends by presenting an exceptionally professional and competent process to the customer. In order to do this, the return policy should be printed on every receipt issued. It should be exhibited in bold signage at the return desk.
Exceptions do occur and it is at this level that the store’s POS system can be utilized to insure fairness, for instance, when a customer return an item without a receipt and insist that they paid cash for the item. The service desk personnel would be able to ask the customer the date and approximate time the product was purchased. This can be cross checked against purchases to insure a degree of consumer honesty.
In the case of clothing, upscale retailers should insist on a no return policy, especially on party clothing (prom dresses, etc).
To make this work, expectations have to be set with the consumer at the time of purchase. People don’t complain when the get what they expect and setting expectations is the most important thing a retailer can do with regard to customer relations.
Retailers who tighten up their return policies now are short sighted and will no doubt be punished by the consumer.
Remember that 99% of customers are good honest folks. Don’t set your policies to deal with the exceptions. The cost of bad returns pales compared to the cost of credit card fees being charged. Maybe retailers should look there for cost savings.
Fraud, as well as out-and-out robberies, rise in hard economic times and it’s easy to see why. Of course, retailers need to protect themselves.
I like the idea of posting the return policy prominently at check-out. One way of ensuring honest returns is to only permit returns on items that have been purchased with a credit or debit card. The customer must show the card and the receipt together for the return. I bet the credit card companies would get a bang out of it too.
I heard, anecdotally, from the manager at a young women’s apparel chain that the most unusual trend seen in the last month has been high returns–more so than a noticeable sales downturn. She attributed that to young women buying clothing and having parents send them back due to economic nervousness. In tough times, some people may carry on their old shopping habits but then think otherwise when they’ve had time to contemplate the bill. Retailers that tighten up on return policies now may find they’re turning off some of their best customers.
It will be a mistake for retailers to tighten up returns policies. Consumers will not want to make purchases with the money they have if they believe that the retailers will give them, or their gift-recipients, a hard time. Instead, the efforts need to be geared to prevent fraud. I have no problem with allowing returns only with receipts and gift-receipts.
There is tremendous brand value, particularly from a customer relationship standpoint, in consistency. Just like our personal relationships, customers want to know what to expect (and what not to) as they decide–consciously or unconsciously–who they do business with.
When the economy is “dicey” it should be no different in terms of service such as return handling. Customers are uncertain enough on their own and when a retailer acts differently then, it only exacerbates the customers doing so.
Best practices absolutely include the ability to identify and track transactions at a customer level.
Costco is, as Doron expected, is consistent and tops in terms of service, which is why their business is strong (though it is strong for the category). When I worked for Macy’s, we would take anything back, as the guiding principle was to deliver a superior customer service. Yes, there were times where we could be absolutely certain that a return was not from our stores, had been worn, and was essentially not worth returning. But when we considered customer goodwill and the paramount need (at least back then) for Macy’s to be consistent, it became automatic.
There are good customers and bad customers. Good customers help the bottom line and bad customers hurt it. Retailers need to cater to the good and sacrifice the bad.
In times like these, good customers are few and far between. Sales teams have limited resources and need to focus their time and attention on these folks. That means they need to be available and spend less time in the office or stockroom and more time on the sales floor. They also need to waste as little time as possible dealing with customer returns, period.
Separate the reasonable from the unreasonable returns, This is one of the most black and white issues in retail. Make the process simple and make the reasonable customer happy *quickly*. The unreasonable returns, like, “the salesperson who sold this to me said I could return it 6 months later for the same price blah blah blah,” need to stop.
Tell them, a) here’s a store credit for the reduced amount or b)sorry there is nothing I can do. Usually this isn’t enough for the unreasonable customers, who tend to be incredibly stubborn and have a history of unreasonable returns, at which point there should only be c) I have to kindly ask you to vacate the premises, otherwise security will take your name and escort you out.
Retailers have finite resources and during these tough times will have to focus more on the bottom line than ever. The vast majority of customers are reasonable and they do not deserve being cheated by the rest. Otherwise, and this happens all too often, “blind goodwill” rewards the unreasonable customers at the time and expense of the rest.
I recently purchased a cordless phone from Circuit City’s online store. It arrived in working condition but cosmetically damaged. I called my local Circuit City store to see if I could exchange it there. They assured me that I could and that they had the item in stock. I was told to bring my damaged phone to the store, find the identical item on the shelf, and take both to their Customer Service Department to make the exchange. Simple.
At the store I discovered that they did not stock the item as they had indicated and that they could not special-order it for me. They offered to order it online for me again–and charge me again–to which I agreed. (Of course, I could have completed this step from home if they had been honest with me in the beginning.) I then had in my possession one damaged phone for which I had paid twice. (I was tempted to ask for my money back at that point, but I still needed a phone.) The plan was to keep the new phone when it was delivered to my home and make a second trip to the store to return the damaged one for credit, which I did. Then, to make the entire transaction especially memorable, they wouldn’t credit me for the second shipping charge.
This entire fiasco began with the store manager–with whom I initially spoke on the phone–incorrectly asserting that my item was stocked in her store. Both times when I got to the store, she was unavailable and her subordinates in Customer Service had to cover for her. They were embarrassed and apologetic, but did the best they could. I wonder how much respect they had for their manager, and how much they followed her training, afterwards.
Most likely, retailers will see an increase in customer returns due to a weak economy. In a weak economy, most consumers want their money’s worth and are very sensitive about their purchases.
One of the ways to balance the need to control fraudulent refunds with the danger of turning off honest customers is to maintain and continue to update a careful database of customer returns. Then, whenever a customer comes back for a return or a refund, that customer’s information should be compared against the data base. If any pattern is detected, then the store management may want to talk to that customer in detail and then decide if a refund is justified.
Another thing retailers can do is to communicate the refund/return policy very clearly and prominently. For example, I recently bought an item from Apple called “Airport Express.” On the receipt, it was clearly mentioned “Return by xx-xx-yyyy.” On another item, an iPod Nano, the receipt had not only the return date but also a note to indicate that there would be a 10% repackaging charge if I returned that iPod Nano and it had no defects.
This is a very straightforward question. Do you want to keep customers happy and coming back to your stores again and again? Retailers who make returning merchandise difficult or impossible are saying “we don’t really care about keeping you as a customer.”
This is one very important reason Costco continues to grow and prosper in every kind of economic environment. They have a “no hassle” return policy. And there is a reason Nordstrom has such fiercely loyal customers. They also have a “no hassle” return policy.
Yes, there are people who will abuse these policies but savvy retailers build the cost of returns into their cost of doing business. They understand that most people don’t abuse return policies. Instead of tightening policies for all customer because of a few these savvy retailers understand the importance of creating legions of highly satisfied, loyal customers.
I would suggest that retailers remain rather liberal in their return policies, but make sure that they are printed out and well placed in key locations of the store and around cash registers. That will do for the honest returns.
Now, for those who are trying to take advantage of the store’s liberal policies, I suggest training to spot fraudulent returns (there must be some sales training company who offers this, or maybe tap the TSA’s policies for what to look for in visual screening), give trained personnel some freedom to deal with customers using what they learn, and hope that you stop the thief and reward the loyal customer who just made a mistake in their purchase. If you are 90% right, your doing well. Err on the side of the customer, always.
I really support Ed’s comment about setting expectations with the customer up front. I adore Target but was really disappointed when I encountered their return policy for my baby shower. They only accept items with gift receipts, yet they don’t always follow through on scanning items on the registry. They also don’t make their gift policy clear and, many times, don’t print a gift receipt unless asked. I have 5-6 of the same items just sitting in my house and have witnessed more than a few irate brides and new moms trying to deal with this.
My point is that even brands with very allegiant customers run the risk of losing future business if this is not handled perfectly. If you’re going to be strict, make sure that expectations are set and the customer is not surprised and left angry.
This is a non-issue. Retailers, who want to remain competitive and in-business, need to have a flexible and consumer friendly return policy. This should be accounted for in their cost of doing business and should represent a portion of their gross margin as a returns and allowances deduction. The savvy retailers (like Costco) have recognized this from day one. This is a cost of doing business and straying away from anything but a robust return policy, when doing direct business with the consumer, is economical suicide.
Businesses have long captured their success and the consumer’s happiness by making their return policy the stalwart portion of their business model (like Nordstrom, Kmart, Costco, Target and others).
Several well-run retailers have tightened their returns policies in recent years, including Costco. In 2007, Costco halved the return time window for electronics, from 6 months to 3, for example. Saks sells dresses with prominent labels telling folks that they aren’t returnable with the labels removed. Stores are tired of being gypped by certain shoppers. Of course, some stores have truly hostile returns policies. Try getting a cash refund from a Pier 1 gift card. You can’t.
Retailers need to make the return policy and timeframe clear with signing, with store associates and on the receipt tape. It can make a big difference in customer loyalty and future sales.
I recently called Lands’ End to return a shirt for my daughter which had a hole in it after only a short period of time. They ordered me a new one with no questions asked and of course they couldn’t see it over the phone. As a long time customer, I really appreciated that level of service. And I am sure other customers do, too.
Give your customers the benefit of the doubt and make your policies clear and easy to follow.