BrainTrust Query: Legendary Returns
Commentary by David Dorf, Director of Technology Strategy,
Oracle Retail
Through a special arrangement, presented here for discussion is an excerpt
from a current article from Insight-Driven Retailing Blog.
Most
people in the retail business have heard the lore of the tire return at Nordstrom.
Even though Nordstrom is a high-end department store that has never sold tires,
they accepted the return in order to please the customer.
Although there were
some odd circumstances, the tale is nevertheless true and serves as an important
example of going the extra mile for the customer.
Another company with an impressive
return policy is Costco. They used to take anything back any time, but in 2007
found it necessary to limit electronics to 90 days.
But I have a story of my
own. My neighbor’s treadmill finally broke after 4-1/2 years of above average
use. He ordered parts to repair it, but when they arrived he found they didn’t
fit. On a whim he explained the situation to Costco, where he originally bought
the treadmill (and still had the receipt), and they offered to refund his money.
Although he subsequently used the refund to buy another treadmill from Costco,
Costco lost money on that deal but retained a very loyal customer.
The NRF estimates
retailers lose about $9.6B yearly from fraudulent returns, so retailers must
find the right balance between customer service and loss prevention. To help,
many are using software that tracks returns so they can detect fraud, limit
abuse, and most importantly — take care of their best customers.
When I recently
went shopping for deck tiles for my patio, I chose to pay a little extra at
Costco for the security of a good return policy. Sometimes the return policy
can actually make the sale.
Discussion Questions: What are the pros and cons of generous return policies
such as Costco’s? Are they more worthwhile as a customer loyalty tool for
retailers such as Nordstrom, L.L. Bean and Costco than others?
Generous return policies just make sense. I spend too much time debating this point with retailers who view the risk of refunds as being too great. So, the 99% of customers who are honest should be punished? Let’s remember that refund policies are in place as a ‘sales tool’ to make selling easier, not because we want to give money back. Compare the relatively paltry cost of bad returns to what retailers pay each year to accept credit cards and you’ll realize that the risk is actually very small.
Retailers would be wise to become a lot more customer friendly … we all have options of where to spend our money.
“Not At Kohl’s” is the theme behind a series of ads being run by Kohl’s department stores to announce their generous return policy. I am not sure it is aimed so much at customer loyalty as it is to attract new customers. While I don’t have the occasion to shop their often, I do know people who do but it is more for the value than the return policy. That being said my wife has a friend who often buys several similar things, takes them home, and then decides which to keep. The stores’ return policy is certainly important in her “purchase” decision.
Overall I think for most customers the upfront value is more important than the return policy because when you make a purchase you don’t do so based on the stores return policy. I think a generous return policy works as part of an overall customer service strategy. The downside is those few purchased the items knowing that they were going to use or wear the item and then return it. Tracking software can determine who they are and then the retailer can take whatever action they deem appropriate.
Creating a retail brand that is legendary for customer service is not something that is done with overly zealous return policies. Building and sustaining a brand noted for exemplary (not quite legendary perhaps…at least not yet) service such as Costco is absolutely not done with anything but an accommodating return policy.
Retail is intensely competitive, with similar goods, similar prices and even equal access to items via the internet, if not next door in the same shopping center. It is therefor absolutely essential to minimize customers’ risk and liberal return policies do just that.
While there is always going to be fraud and people wanting to steal, if you believe that the vast majority of people and customers are honest–and you should–then while there will be losing transactions like the treadmill example above, the investment in those customers will pay back many times over.
Policies like Costco’s and Nordstrom’s allow customers to be wowed and they lead to emotional loyalty, which no “program” can touch.
Having started my career at the original Macy’s it was clear that having such a policy made a huge amount of difference for our customers, particularly when the Federated competitor at the other end of the mall sold much of the same merch (and for $2 less!).
The con is simple–certain people will abuse the policy or even use it to commit fraud. The pros–in terms of lifetime value of a loyal customer, etc.–are endless and so compelling they far outweigh any con.
A good returns policy is powerful not only for generating loyalty, but also for preventing lifetime boycott of a store by someone who feels cheated.
I just had a real life example of the value of the return policy at Costco. We bought my son an expensive big screen TV for a milestone birthday in a Costco in Virginia. We drove to New Jersey to surprise him on his big day and we installed the TV. 3 weeks later the TV broke and he loaded it in his car with no box or receipt and Costco looked us up as purchasers and exchanged it right away. Needless to say we were thrilled from 400 miles away.
Compare that with an accusing look I got from an unnamed retailer for bananas that I tried to return that had been bruised or frozen in handling but the skins did not show that. Which retailer gets my vote with my dollars?
I just love retail story time. It makes me feel all warm and fuzzy.
Of course you want to please your customers and create long-term loyalty–a lesson many retailers have yet to learn. You should start teaching your employees not to treat customers who return things as pariahs. Too often, you make a return and you’re treated like a second class citizen–or worse, a criminal trying to get away with something. I’ve never had to undergo a third degree the way I did returning a pillow to Target not long ago.
Often it’s the retailer’s return policy all by itself that makes the sale to the consumer. Companies such as Nordstrom and Costco are two excellent examples of retailers that make it so easy for shoppers to buy and return. Do some consumers take advantage beyond reason? Yes. However, the overwhelming majority do not abuse the policy and the fact that these retailers have stuck with their user friendly policies for such a long time gives validation that the policies work well.
Look at companies with good or great return policies and you see companies with better than average customer loyalty and profitability.
Yes, someone will rip you off but with today’s tracking systems, it is easy for retailers to make sure that the people who return something are the people who bought the item.
For example, Costco has a record of everything I have bought tied to my card. When I wanted to return something without the receipt they were able to pull up all of the data.
In many cases it does not even cost money for the extra benefit of a great return policy.
There is absolutely nothing (repeat…nothing) more important in retail than building repeat clientele. The one or two percent of customers that might abuse your return policy are a small price to pay for the other 98% that love you because of it.
There are some stores that find your receipts online and confirm whether you purchased the item at their store even if you no longer have the receipt. In that case you get store credit not cash but can return the item. While there was an example of Costco maintaining a loyal customer and getting an additional sale because of Costco’s return policy, I have an opposite example. I had purchased some luggage at a store in part because of their return policy. When something on the luggage broke before the warranty was up, I took the piece back to the store with my receipt and a copy of the warranty. Macy’s had purchased the chain and refused to honor the promise of the previous store. Macy’s refused to replace, refund, or send the item to the manufacturer. Eventually I sent it to the manufacturer and it was fixed. However, Macy’s lost my loyalty.
This is retailing 101. I was trained at Macy’s back in the day and we were taught that a return is an opportunity. While that sounds like training hyperbole, it is absolutely true.
The trick is finding the opportunity in the transaction. It could yield a larger ticket or it could be just a chance to show that customer that your store is a great place.
Even the smartest and best can get it wrong, though. For example, Target’s technology allows a return even without a receipt, just as long as you have the original card you used.
Old Navy’s, on the other hand is too operations-centric–without a receipt, the customer has to wait for some sort of voucher or check to arrive in the mail.
While it’s vital to create a sense of shared responsibility between the company and customer, consumers know and feel the difference. No one likes being treated as if they are a suspect.
It’s pretty clear that the RetailWire community is a fan of customer friendly returns policies. So repeating my favorite L.L.Bean parable here yet again hardly seems necessary.
Perhaps a more interesting–and maybe even useful–discussion might examine just what quality it is that a generous returns policy elicits in a retailer for consumers. And more to the point, are there other things retailers can do to further reinforce what must obviously be such an important quality(s)?
Trust seems the most logical nominee. Reliability could be another word. Consumer research would no doubt reveal higher order emotional descriptions like “values me as a customer.”
But if we are in the right church with “Trust” then picking precisely the right pew may not be so important. The more productive discussion might be “what else can retailers do to reinforce ‘trust’ with their customers?”
A short starter list that comes to mind;
– prompt resolution of pricing discrepancies
– honoring all coupons and manufacturer offers
– matching competitive retailer offers without prompting
– making sure customers are aware of all the rewards or
savings they might be entitled to
Example: Cabela’s cashiers always ask me at checkout “Mr. Ball — you have $25 on your Club Rewards balance — would you like to apply that to today’s purchase?” Juxtapose that with unnamed airlines who never notify you that your Award Miles are about to expire.
My father trusted Ford, Sears & Roebuck and the preacher–and he was sort of “iffy” on some of the preachers. Retailers who can build that sort of reputation have an invaluable asset.
Legendary return stories are interesting. My favorite customer service story that is out of the box centers around Zappos. Tony Hsieh was in a late night meeting when one of the participants challenged Zappos legendary customer service and called to order a pizza. Longer story made short was the pizza was delivered in less than 45 minutes. But I digress.
Many of the more successful retailers have found easing their return policy has helped to increase sales over the longer periods. Yes, there are those who argue the validity of returns after long periods; and I agree there could be limits put on them. But if there is documented proof of concern over a purchase such as an automobile, washer/dryer, computer, etc, then extended timelines are acceptable.
The next step in the process is training the customer service reps that it is OK to accept returns; and limiting the questions to the problems with the product only.
There are lots of great comments here, and as Ben Ball points out, it’s clear we all favor a generous return policy as a way to drive customer loyalty.
As some have pointed out, those return policies can even be a prerequisite for shoppers buying in the first place: I think of Zappos.com, which, by allowing returns of their shoes, lets customers buy sizes 9 1/2, 10, and 10 1/2 of the same shoe and then return the two that don’t fit. In essence, their return policy is the equivalent of letting shoppers bring the shoe store to their home, and it makes all the difference when someone is contemplating making a $125 purchase online or waiting for the weekend to visit a shoe store.
In bricks-and-mortar, I see returns as an ideal area to leverage loyalty card data. I’d like to see a Costco-like return policy at all stores with a card: if you bought something with your card, you can return the unused portion at any time for any reason, and if you didn’t then you need a receipt. The bogeyman of fraudulent returns would be vanquished, and your regular shoppers would know that they could buy anything with absolute confidence you’ll stand behind it.
I think a “generous” return policy is mandatory for doing business now, period. However, “generous” should not mean “stupid.” I knew people who had a lifetime of appliances from one large U.S. retailer, for example, because of a return policy that was simply carte blanche.
A good return policy also has to be good for business, and that takes training, experience, a solid work force and — fortunately or unfortunately — some extremely clear parameters.
Making returns ‘work’ for you as a retailer is like dealing with a bell curve…you’ve got to be prepared for both ends of the curve, not just the middle.
Just check Costco’s last same-store sales report. And, the next, and the next. It says it all.
Return policy is about experience. Experience creates loyalty. Funny thing–its a policy, practice, procedure, and part of an overall experience. Gee, it had nothing to do with a ‘loyalty program/card’. Imagine that!
I thought I was in a minority of one until I read Lee’s comment. I think an ‘anything goes’ return policy is over the top for most retailers, unless they have built a major pillar of their business on it like Costco or Nordstrom. Much return abuse is from the same consumers over and over and over again. I am for reasonable limits on returns for credit card shoppers and strict limits on cash shoppers. Savvy, honest shoppers should understand reasonable rules.
Any company that has a large mark up on their items can afford to have a more lenient return policy. While you initially lose money on the return you have a much greater chance of breaking even or coming up with a profit if the average costumer is satisfied and returns to shop.
The returns still need to be monitored in order to ensure abuse is not rampant.
It’s interesting that both of the retail companies cited in this story are among the most consistently successful retailers in good times and bad. While Nordstrom and Costco approach the retail business in very different ways, management at both companies is fundamentally committed to both their associates and their customers. Liberal return policies are a core part of that commitment and one of the best tools any retailer can embrace if they truly want to build long-term customer relationships.
After 65 years in business (2nd generation) my best advertising has been by taking returns. If it is worn or damaged, I accept it. It’s too expensive to replace a customer. I either return it to my vendor or throw it out. It seems to work very well after all these years. Yes, some do abuse the system but it works for us.
Measure the returns, find the abusers, send them to your competitor.
Retain the best. I like to know what percent of the entire purchase is returned. Sometimes it’s just a small item in a massive basket.