Costco Holds to Member Friendly Return Policy
Costco, it is well documented, is not the typical retailer. While all claim to be focused on the customer, it is one retailer that demonstrates that commitment in clear and simple turns on a daily basis.
One such example is the warehouse club’s return policy. Costco guarantees all the products it sells and will accept returns from customers even if the item has been used for an extended period of time. Shoppers have the option of a refund or store credit when they bring product.
Of course, with such a broad guarantee there are bound to be people who will take advantage. A report on the Daily Tech web site relayed the story of one shopper who returned a digital camera after four years of use. After receiving a full refund, the same shopper proceeded to buy a new camera in the club.
While there are examples of club members using Costco’s return policy to the detriment of the retailer, those instances are called rare. An unidentified Costco associate told Daily Tech, “Sometimes we’ll get the odd return of a product that we haven’t carried for years. Customers are usually returning defective products and want a replacement. It’s not often that we get someone trying to get their money back for something that’s really old.”
The one area where Costco has found it has had to place a time limit on returns is personal computers. In 2002, the company instituted a six-month window for consumers to return defective items.
“We’ll take anything back without batting an eye, except for computers,” said an unidentified warehouse store manager. “We don’t really like seeing TVs that still work fine come back after a year, but we’ll accept something if it’s broken.”
Richard Galanti, vice president and chief financial officer of Costco, said there’s no reason to change the company’s policy. “For every customer that abuses that privilege, there are 99 other customers that go, ‘Wow.’”
Discussion Questions: Why do so many retailers, implicit in areas such as product returns, behave as if their customers are out to cheat them? Do return policies contribute to whatever sense of “loyalty” shoppers have for a particular store?
It’s all warm and fuzzy to talk about Costco’s wonderful return policies but let me give you an example of a return I took today. The customer was returning a sewing machine that was purchased Sept.9…it was bought for her as a gift and she didn’t like it. (Of course, no gift receipt.) When I mentioned the item was 4 months old, she told me she knew exactly what she wanted back in September. (Well, obviously not since she now was returning it because she didn’t like it.)
Our basic policy is to return the item the way it was paid for, cash gets cash etc. This was paid for by her friends credit card, but of course she didn’t have the credit card. (“How about just putting it on my credit card,” she said. “I don’t want them to know I returned it.”)
Our next policy choice was to credit her in-store credit card or offer her a gift card for the amount of the purchase. Well, that wouldn’t do because we didn’t have any sewing machines she liked. (She had been sewing for 30 years and knew this one was just a “pile of crap.”)
She then tried to quote me the company return policy from the website that she had completely spun to confuse the co-worker into returning the item the way she wanted. When I showed her a copy of the policy I had printed from the website, all things changed.
To make a long story short, I gave her back her cash so she could run on over to Wal-Mart to buy the machine she wanted. I was polite and professional and she thanked me for making this return work out for her but…I couldn’t help thinking, if you knew you were getting a “piece of crap” $79.00 sewing machine in September, why didn’t you ask the gifter to just get you a gift card from Wal-Mart and you could have bought the machine you wanted in the first place.
Keep in mind that Costco is members only. If a customer abused the return policy, all they have to do is cancel the customer’s membership. Costco, like any business, is not going to let cheating customers run roughshod over them. Other retailers do not have the option of preventing cheating customers from shopping at their stores. So they might have to be more strict. Costco charges a membership fee and caters to a higher class of consumer, so they have some safeguards in place. Retailers have to weigh the pros and cons of their return policies. It’s basic supply and demand. Supply a liberal return policy and demand goes up. Retailers just need to find the optimal policy that provides the best results.
Returns policy is one area where it’s evident that our businesses are not truly consumer centric, and while that’s understandable today, it’s becoming less defensible in a fully connected world.
The key here is that to build loyalty, a retailer needs to build trust, and this needs to be communicated back effectively to the shoppers. While we know that there will always be some abuse, the trick is to use all the tools that are available to balance the cost of abuse with the benefits of increased loyalty. This is likely to be an emerging best practice among successful retailers.
This is just another example of what a class act Costco is. They just “get it” when it comes to taking care of their customers and employees. I recall that Nordstrom is another retailer that has superior customer service and they happen to be from the same part of the country. Is there something in the water out there?
Costco’s liberal, no question sasked return policy is tied to their suppliers who understand that this is part of Costco’s business model and that suppliers will have to support returns Costco takes back if they want to continue being a supplier in the future.
Costco also caters to a higher-end consumer who is less likely to abuse returns and the reason why nearly all returns are appropriate.
I doubt Costo would continue to support their no questions asked return program if it had a strong impact on their bottom line….
I don’t believe favorable return policies are significant criteria for most consumers when they are choosing a retailer, rather poor return transactions on the part of a retailer will significantly damage any loyalty a customer may feel. Return policies such as Costco’s are rarely abused and offer an easy and comfortable product return transaction. On the flip side are retailers that mistreat customers during this transaction.
Everyone has their own return stories and these are two funny and ridiculous examples of both sides from the Home Center Industry. 1) A few years ago I knew an employee [at a major D-I-Y Retailer] that gave a $15 refund to a customer that insisted she purchased a tennis racket at his store. 2) I recently returned a new kitchen sink to [another major D-I-Y Retailer] after I noticed it was slightly cracked. The returns employee accused me of breaking the sink myself.
While a broad return policy will invite some abuse, a stringent policy can damage repeat business.
If you’re selling bad merchandise, the most liberal return policy in the world isn’t going to help you. On the other hand, if you are constantly having confrontations with customers about every little item in order to discourage them — you’re screwed. People don’t need to shop your store to make another enemy.
But stores have to watch out for serial returners. Some are just a pain in the neck and will return anything — good or bad. But this is also a big issue when it comes to organized retail theft — returning stolen goods for cash or store credit. so there needs to be some strict internal policy
A retail mentor of mine once said to me, “You know, any retailer can make buying something a good experience for a customer, but it takes a great retailer to do the same with a return or an exchange.” Costco’s return policy proves to me that they walk the talk when it comes to being customer focused.
I believe that a generous return policy contributes very strongly to a retailer’s customer loyalty. Sure, there are folks that are going to abuse this benefit but as others have mentioned, club operators like Costco have the ability to cancel the membership of someone who is a chronic abuser or a cheat. If a retailer truly is customer-focused, this means allowing your shoppers to return just about anything, no questions asked. My wife and I are Costco devotees and while we don’t return very many things, knowing that we can return an item if it’s defective or just not what we wanted after we get it home, gives us peace of mind. It also generates another trip to Costco in a week or two where we will once again, blow our brains out on all kinds of great buys….
My “beef” with Costco is that they don’t make it easy if you only have 1 or 2 items. You are forced to stand in the same lines as those that have an entire basket of merchandise. I once went over to the Photo counter (which was not busy) and they told me they weren’t allowed to ring up non-photo items. At least at Sam’s club, if the other counters (even the membership desk) are not busy, they will check you out if you only have 1 or 2 items. This is an area in which Costco NEEDS to improve to truly be “customer friendly.”
One reason for Costco’s edge in the returns area is that it is a “club” and shoppers are “members.” I don’t have stats to support this but it would seem obvious that members of a club are less likely to cheat the club than shoppers of a traditional store would be. The membership fee no doubt deters low-level thieves and paying a membership fee annually makes members feel that the store is partly theirs.
Speaking from personal experience, it’s a heck of a lot easier to return/exchange even a computer at Costco than it is to do so at one of the big electronics stores. There is no restocking fee and they don’t act as if you are out to rob them. Really.
As to why so many retailers behave as if shoppers are out to cheat them, unfortunately it is because they are.
Costco is simply the best! We look for excuses to go there. Only downside is it’s just too easy to spend money there! Used to do that with Home Depot too but the increasing lack of service has cooled our enthusiasm.
Richard Galanti and Costco have it exactly right when it comes to return policies. The ‘lack mentality’ of many retailers (retail is tough, you cant’ make a living at it, Wal-Mart is evil, and other whines) includes the assumption that most customers are crooks and so they set policies accordingly. Big mistake. Because not only are policies anti-customer but the behavior of employees and the whole organizational culture takes on that tone too. You feel it when you walk in the front door.
True there is the person who will buy the suit, wear it to the prom and return it. They’ll get their payback throughout their life because they have lack mentality too. But for the Costcos and Neiman Marcuses of the world…they become the stuff of legend. God bless Costco.
The most famous return policy: Rich’s (an Atlanta department store in days gone by) took back everything, even merchandise clearly purchased from its competitors. Like many other retailing debates, return policy costs can be measured. Many retailers charge the returns back to their suppliers, which doesn’t eliminate the loss, but it helps. There’s no doubt certain shoppers abuse return policies, and there’s no doubt certain retailers hurt themselves (some with excessive restrictions, some the opposite). The #1 issue: if the return policy is generous, is the retailer buying the goodwill of abusers? The #1 solution: software that clearly identifies the reasons for the returns, the abusers, and the statistics by item and supplier.
This is certainly not a news flash to any of you, and sadly I do not have stats for it, but on the surface it appears that Americans are far more likely to return goods regularly or frequently than most other people. Based on my admittedly unscientific observations, most of the people I know take it as a god given right and would prefer to return than think carefully before buying. They also seem less reluctant to return something that isn’t quite as perfect as they anticipated and to find fault where it may or may not exist.
Maybe I just know the wrong people but, from what you all have said, maybe the ones I know are not unusual. My mother recently returned an unwanted gift to Costco without a receipt but successfully got a refund even though the computer couldn’t find the original purchase listed on the account of the member who gave it to her. Maybe it was re-gifted? No matter, Costco took it back anyway.
As with so many other things, it’s a pity that the majority of honest customers (citizens?) are penalised for the minority of dishonest ones and I agree with those who have pointed out that a positive attitude may not engender loyalty but a negative attitude almost certainly discourages loyalty while possibly even causing offense.
One final note to David – just because people pay to shop at Costco doesn’t necessarily mean that they are well off; the people I’ve seen in several branches on several occasions this trip certainly don’t give the appearance of being well off, quite the contrary. They looked to me like people who enjoy eating big and paying small.
Costco’s return policy is just a small item on a long list for a company that has it all going in the right direction. It’s no surprise. It’s also no surprise when you look at their comp sales month after month. Certainly their policy is a good one but it alone doesn’t weight out. It takes their entire approach. They are a great story. They aren’t really doing anything that should surprise anyone. It’s just that they are doing what so few choose not to. Nothing they are doing is complex. It’s that they are doing it at all that makes them extraordinary.
I have always found that a return policy reflects a retailer’s customer service philosophy. The policy should be clearly stated to consumers both in the store and on the receipt, especially if there is a time frame involved.
From my experience, it usually pays to give the customer the benefit of the doubt in product returns. Otherwise, company management can spend many times the actual cost of the product in their time “negotiating” the return. Customer loyalty data (kept confidential, of course) also can guide a retailer who isn’t sure a large return is “worth it.”
Costco is the one that not long ago acknowledged, then addressed (via their “concierge” installation service launch), the frightening drag on profits resulting from excessive returns of large electronics. Seems that many customers over-estimate their ability to set up complex systems and hit the returns counter out of frustration.
Not all retailers believe that their customers are out to cheat them…but the many that are lining up to add electronics to their line-ups are dealing with a less straightforward problem: Pilot failure!
This discussion picks up where “How to create customer loyalty” left off a few weeks ago. The answer is the same. It’s what you do for me when you don’t have to, that matters. Case in point; a much anticipated “early dinner and a movie” last Friday night quickly turned into a “fix the flat tire and grab a bite to eat.” Saturday morning found me in the local Firestone dealer with 2004 paperwork in hand, saying “I see there’s no warranty in effect but I thought these might help you figure out the right replacement if I need one.” An hour later I was summoned to the counter to find the tire repaired and a cheery “No charge, sir. It’s just part of our service when you buy your tires here.” You can believe I meant it when I said “Thanks. We’ll be back.”
I’m wondering if anyone can offer an answer.
We had a serial returner; brought back some things without UPC code they were so old. I was usually called when she wanted to return something. She was a widow and would promptly bring back milk on the “Use By” date, even if it was nearly gone. I traded her down from the half-gallon to the quart.
We had a milk sale, she bought 1-1/2 gal and got one free. She returned a half-gallon the following week. I told her that it was a BOGO and sorry no refund. She told me, “I drank the free one and this is the one I paid for.” I was struck silent, no response.
She ended up being banned from every other store in town, from groceries to clothing. She was a pretty good customer, but really a pain to put up with.
Retailers discourage returns because, at the end of the day, they don’t want to be bothered with them. Assuming the public is criminal provides a good excuse for a bad service policy. Sure, there are lots of real bad folks out there trying to defraud the system; but there is a much higher percentage of customers who are honest. Do easy return policies build loyalty? I don’t know. Does a bad service experience (like making a legitimate return difficult or impossible) kill loyalty? Bet on it!
It’s pointless to treat the customer as the enemy when retailers wouldn’t have jobs without her. Assuming the retailer has systems sophisticated enough to refund sale prices (if the customer doesn’t have a receipt or gift receipt), a liberal return policy is one of the cheapest ways to earn long-term loyalty among your customer base.
Goodwill and positive word-of-mouth (especially for a chain like Costco moving into new markets) are like free advertising, more than offsetting the abuses of a small minority of customers. If the retailer has strong internal controls elsewhere (to tackle shortage, for example), it should more than offset the costs of a generous return policy.
Returns policy and returns experiences contribute greatly to the overall customer experience. A recent study conducted by KPMG LLP indicated that 75 percent of consumers said a simple return policy helped them decide which retailers to patronize.
The survey polled 1,200 shoppers from Dec. 11 to 21, 2006.
At our company, ICC Decision Services, we help retailers measure their customer service and the customer experience and we also have found that the returns experience plays a big role in whether or not a consumer returns to shop at a given retailer.
Those retailers who ignore this important part of the shopping experience or who do not measure whether or not it is being done correctly, are missing the boat.
There are many apocryphal stories such as the one above (Nordstrom tires, anyone?), but there are few (if any) formal studies that carefully examine the link between return behavior and the components of lifetime value (i.e., length of time as a customer, transaction rate while customer is “alive,” and revenue per transaction). I’m doing such a study right now with several leading catalog marketers. It’s too early to report any results, but if anyone is interested, check in with me in a couple of months….
Such excellent comments by the panel. If a retailer of any product or service is consumer centric, and understands, when needed, the return policy is part of a complete and positive shopper experience, the value of building a loyal base of shoppers, on this policy, is most advantageous.
Interestingly, retailers in this favorable return practice also reinforce the current core shopper base; and here is where the ‘word of mouth’ actions really pay off.
If I’m not mistaken, the returned products are covered by the manufacturer up to a percent of the total sales of the brands sold.
Just look at Macy’s, Target, Nordstrom, and other middle to specialty retailers’ loyalty base and positive consumer centric ratings! Hmmmmmmmmmmmmmmm
A good return policy can be a source of differentiation and retailers should at least check that their policy is equal to their main competitors. In the UK, Marks and Spencer used this to their advantage for many years. You should also make sure you also empower your employees to understand the rules and see the benefits, as customers should be viewed as having a lifetime value, not just a single sale.
Sam’s Club is a constant victim of fraud on returns through fake or altered receipts, check fraud, and credit card fraud. In my opinion, the Sam’s Club’s membership base consists of the people who think that they are getting the same kind of membership as Costco but for a cheaper price. In reality, the two are very different in that Costco’s buildings are staffed better, merchandised better and a more pleasant place to shop. Not to mention the employees are paid better thus producing a more skilled knowledgable employee who is accordingly held accountable for his job duties. All this being said, Costco has created an atmosphere of trust and respect starting from the staff and extending to the members. As long as Costco maintains its high business integrity — starting with its operations — it will always have the ability to keep a good amount of the maliciousness at the Sam’s Club refunds desk where at any given time, you can find an uninformed, under-trained, and underpaid employee who will easily fall victim to your scam. The part that I question is what happens when Jim Sinegal retires from Costco? Will the emphasis fall away from taking care of the employees and the members and turn towards better suiting Wall Street and the shareholders?