Many Happy Returns a Competitive Advantage
Nearly one in five consumers will return a gift from the
holiday season. Some will find that returning merchandise is not as easy to
do as in the past as retailers tighten up policies to reduce fraud and protect
the bottom line.
Some retailers will continue to offer liberal return policies
and even seek to use them as a means to differentiate from competitors in the
market. A case in point is Kohl’s.
The company does not put a time limit on
returns. Items with a receipt or paid for with a Kohl’s card can receive a
full refund or get an even exchange. Those without a receipt will get a merchandise
credit. Items can be returned to any store or to Kohls.com.
“We know that customers are being responsible and resourceful in their
holiday shopping and we want to remind them that they can shop with confidence,
knowing that if someone on their list doesn’t love their gift, Kohl’s will
gladly take it back,” said Julie Gardner, Kohl’s executive vice president
and chief marketing officer, in a statement. “Our industry-leading return
policy is part of the total value that we extend to our customers — as we
stand behind every purchase made in store and online at Kohls.com.”
Discussion Questions: Is it wise to try to use liberal return policies
as a competitive advantage and actively communicate them to
consumers? Are those tightening return policies engaged in a “penny-wise,
pound-foolish” action or will they, in the end, fair at best?
Return policies probably play a bigger role in the purchase of gifts than in general purchases. They also are more of concern for electronics and computers etc.
Liberal policies are appreciated by consumers and not likely to be overused. However, it is important to make restrictions clear.
Promoting the return policy generates an air of credibility along with generosity and a positive consumer experience. There is enough history in the retail industry to illustrate what works and what doesn’t work.
Kohl’s has clearly tapped into an effort to embrace their shoppers and create a long-term relationship of trust and good will. As long as consumers like the products available, the return policy is a competitive advantage and probably a less costly investment than much of the media spending which puts most retailers on an even playing field.
When it comes to return policies, you can’t get much more liberal than free shipping both ways (with return slips included in every shipment). The more that retailers move toward hassle-free online return processes, the more out-of-step brick and mortar retailers will look when they throw up obstacles!
The late Hubert Humphrey once secretly confided in me at the opening of a Kroger dairy facility that some of his economic and political views were not part of his public persona. I asked him why he publicly championed only opposite, albeit popular political, views. He replied: “Gene, you got to do what you got to do.”
So, too, with return policies. Many retailers would prefer not to be harnessed with 20% of its sales being returned for whatever reasons. To capitalize upon this reality, Kohl’s and some others try to make their return policies work toward cementing people to their banners. In other words, they must believe that you got to do what you got to do.
Advertising liberal returns policies may have some impact on holiday sales due to gift giving–but in general consumers will still tend to take the best price deal on the same merchandise over a more liberal returns policy.
The reality is that a punitive returns policy only affects the retailer/customer relationship when a customer tries to return merchandise. But that impact can be profound. I’ve seen chain emails regarding poor returns experiences that make scorned lovers look forgiving in comparison.
So the real impact of a returns policy on the business is probably a “slow build”–but permanent. That will be deadly over time for the retailer.
To paraphrase Alexander Pope “To Buy is human, to return is divine.” When consumers are purchasing a gift they hope that what they purchased will fit, is the right color, is the correct model, etc. Given that it might not be, the ability to have it returned with little to no hassle is great safety net. It removes some of the stress gift buying brings. Regardless of what the policy is it needs to be understood by customers or no matter how liberal, friction will occur at the point of return.
The recipient of a gift is a de facto customer. Make the return process a painless, efficient transaction and you have a potential new regular customer. Make it a hassle and you’ve not only have lost that customer, you’ve bought yourself a nice negative offset to the money you spend on marketing. In the current market share environment, this is a no-brainer.
The only complicator is that while it’s an easy decision for the central office, for the operators in the stores it is more difficult. They see the occasional fraud and the return counts against their sales results, in most cases one of if not their primary accountability. To capture the potential opportunity for positive customer service, stores management should be involved in developing policies that do not penalize the store operators for the returns. As obvious as this sounds, in most cases it is not considered.
We continue to address the components that drive shopper loyalty. The seamless, stress-free return policy of any type of retailer is a key part of what makes a person avoid another store to shop that one.
Are product returns a major margin impact in some specific types of retailers? Of course, however, when the management of the retail organization looks at the overall impact of the policies and weighs them against the positive growth of providing them, the relatively minor cost of doing returns business in a more generous manner will typically prove to help fuel growth for more than it will be a detriment to the P&L.
How can you possibly compete these days with restrictive return policies? The idea of the refund policy isn’t that we want to give money back, it’s that we want to make buying/selling easier! Store staff need to actively market a liberal refund policy to close more deals. Yes, some will abuse the policy. But retailers like Cabela’s succeed in identifying the few that are abusing the policy and reducing their losses significantly. Don’t punish all your customers because a few are bad apples.
The policy whatever it is has to work. If it isn’t working – too liberal or too tight, really doesn’t matter.
There’s no greater measure of how everything is working than that of same store sales year over year. This weeks’ most current results from Costco were a 7% sales increase in same store sales for all of their stores open at least one year. They continuously produce 6-8% regularly in this area. Their return policy is: We guarantee your satisfaction on every product we sell with a full refund. The following must be returned within 90 days of purchase for a refund: televisions, projectors, computers, cameras, camcorders, iPOD / MP3 players and cellular phones.
Their customers know, their employeees know and the public knows their deviation on electronics. Its their only exception that only resticts time to within 90 days. It says nothing with respect to time on any other product they sell. I’d suggest it’s working.
Retailers who aren’t producing the same proof of loyalty and sales growth might consider their return policy, as well as a host of other things to achieve these types of continuous results. Too strict or too liberal really doesn’t matter. What matters is does it impact your ability to best serve your customers? I would be quite sure that Costco, as well as, other great retailers regularly measure returrns for a lot of reasons. I would also suggest that process is equally as important if not more important than policy. A return of any type is a point of dissatisfaction. It’s an experience of interaction with your customer. The process of how it’s handled regardless of policy can determine if it’s your last interaction or simply one in many to come.
Return policies have a large impact in my own purchasing decisions. Particularly with electronics, where often times the hype does not actually translate to the product. As such, I will pay more for the product, sometimes several hundreds more, if I know I can return it without hassle or a restocking fee. My spending at Nordstrom and Costco has increased dramatically as a result of their more flexible return policies and they have gained a loyal customer. I have also told friends and family about my experiences with each company and they have purchased memberships (in the case of Costco) and started/increased their shopping with both retailers. How many thousands of dollars have their liberal return policies generated for them; in my shopping and of the people I referred? I think it is interesting to note that neither company has a huge marketing presence.
In contrast, I never shop at Walmart because they stamp your return when you walk in, the return counter is always understaffed, and you are treated like a criminal if you return something. Another issue with Walmart is that their online price is not honored in store. Many customers want to see and touch an item before they buy it.
You can get away with an “okay” returns policy that is reasonable, and you should promote it. As I find out about restrictive returns policies, I stop shopping at those retailers. Ben Ball mentioned chain e-mails, and I got one awhile ago about horrific returns policies at Best Buy. I didn’t believe it, so I went to their website. Once I read the returns policies, Best Buy lost me as a customer (and I used to spend a lot there!).
Advertise/promote/communicate liberal returns policies? Absolutely! Do they help differentiate/provide a competitive advantage? You betcha! Witness: Nordstrom, Patagonia….
Unfortunately, there are many retailers that don’t want to advertise their return policy, or decide to make it as difficult for the consumer to return the item as possible based on the belief that it will help to reduce the number of returns they will ultimately get from the consumer. This is patently false, as consumers don’t purchase goods to return them but generally do so for the following reasons:
1. The product did not meet their expectation
2. The product was damaged or did not function properly
3. The product did not fit, etc. and need to exchange
4. The delivery experience did not meet expectation (e-commerce/catalog only)
Understanding that this is an oversimplified view of the world, those merchants that clearly state their policies, set customer expectations, and are committed to making sure the customer is satisfied with the shopping experience are the ones that will ultimately gain the most in terms of immediate revenue gains and long term growth tied to customer loyalty.
The world of retailing is so competitive today in terms of price and product availability, merchants have to do something to differentiate themselves from one another – and one of the easiest ways to do that is through a comprehensive, easily understood returns policy. A bad policy is not only a barrier to securing the order in the first place, but up to 85% of survey respondents have said they will not shop with a merchant again if they have a negative return experience. It simply is not worth the risk in an effort to try and save a little here or a little there.
I only wish the Legacy Airlines would understand ‘return policies’–Southwest has them beat with 12 month, penalty-free credit that can be used for any person to any destination–much more fair and hassle-free than the Legacy Carriers.
And the result, if I even ‘think’ I may take a trip, I book on Southwest without fear and in fact, I now try to fly only on Southwest, this from a LifeTime Million Mile Flyer with both United and Delta.
The knowledge that ‘AFTER THE PURCHASE’ that one will be treated fairly is really important–and retailers that are FAIR, like Kohl’s, REI, Trader Joe’s, Costco and yes, even Southwest Airlines are rewarded by loyal customers.
I have learned to ask about the return policy prior to handing over my credit card. If I am uncomfortable with what I am told; I do not make the purchase. I believe I am now in the majority, especially since money is tight; and most of us do not want to waste it even if the purchase is for someone else.
Liberal return policies are going to play a major role in future purchases for many years.
I agree with the above comments about liberal returns policies being smart, to a point.
We all know that there is a small percentage of serial returners that can really reduce a retailer’s profit margin. Many items have to be damaged and/or returned to the vendor and can’t simply be put out for sale again, even if there is nothing wrong with them.
Just like there are big/loyal spenders there are consumers who return nearly everything they buy. And, there are customers who will return damaged and or used items even if they caused the damage/wear.
So, I think there has to be a liberal policy for the 95% of shoppers who behave normally, and a custom tailored one for those individuals who serially abuse the system.
I have found that certain types of merchandise are prone to be bought by “customers” who wish to use an item for a few weeks, then try to return it for a full refund, often demanding that the store pay for return shipping as well, and who are usually verbally abusive on top of it. These products are jewelry and women’s clothing.
I have a very small online jewelry store. I tightened up my very liberal return policy after a run of such “customers” this spring, because I would rather have a few good honest customers than a lot of the kind who see my store as a lending library. I am not large enough to sustain a great many returns of that kind and still stay in business.