Merchanise Returns- ABC's of Small Business

Merchandise Returns: Making Customers Happy Can Be Good For Your Business

What Returns Am I Legally Obligated To Make?

Good news for those who thought the government was intruding into every aspect of business! You get to decide your own return policy as long as you tell your customers what it is before they buy and always take back defective merchandise.

Why Should I Have A Return Policy That Does More Than That?

There are two good reasons to have a return policy.

If you are going to have a merchant account, where you can take credit cards as payment, your merchant account provider will want a copy of your return policy. Theoretically, it will be applied when customers request chargebacks of their purchases from you. Practically speaking, many merchant card issuers will make chargebacks for a variety of reasons. Having a good return policy puts you more in control of the situation that can reduce your costs.
Did you know that, on average, it costs 8 times more to get a new customer than it does to keep a customer that has already ordered from you? Amazingly enough, customers who have had problems you have successfully resolved often become loyal customers. They will buy from you again and they will recommend you to their friends. Why? They know how you will treat them when there is a problem and it convinces them that you provide superior service.

What Do Your Competitors Do?

Your competitors' return policy is very useful information for your business. Look at what they do, and then adapt it to your customers and your business. Find out:

Do they take back all merchandise?
How much time do customers have to return products?
What kind of "red tape" is required? Do they require a receipt? Are any special forms required to make returns? Does the customer need to get a return authorization number?
Do they charge a restocking fee? If so, how much?
Do they pay for return shipping or does the customer have to pay for it?
How do they handle exchanges?
What is the process for returning unwanted gifts?

Writing Your Policy

Your return policy tells customers what is required to return products they have purchased from you. It's important to make return instructions easy to find, easy to read and easy to follow. Who in your organization, or which contract source, handles returns? Make sure that contact number such as fax and phone numbers, email and snail mail addresses and websites are clearly posted on your sales receipt and other materials.

You can expect customers to want to return defective merchandise, unwanted gifts and products that just do not meet their needs. In all cases, it may be easy to help them find a replacement or upgrade that will make them happy. Don't be pushy about it, but do make sure that they understand the opportunity

Will they need their sales receipt?
What condition does the product need to be in for you to accept it?
How much time do they have to return it? The buyer must be clearly informed of this limit before purchasing the product.
Will you require them to give their name and address on returning a product? This also must be disclosed before purchase, not just on the receipt.
You can charge a restocking fee if that fee is clearly disclosed before the item is purchased and is also posted on your return policy.
You can restrict them to getting a merchandise credit rather than cash if it is noted on your return policy.
You can refuse to accept returns of items such as intimate apparel as long as your return policy is disclosed before purchase.
You can limit refunds to the lowest price at which the merchandise has been sold if the customer does not have a receipt but you must let buyers know that this is your policy before they buy.
You may be legally required to give your customer a choice between repair, refund or replacement if the merchandise did not work. In this case, you cannot charge a restocking fee because it limits the customer's warranty rights.

Posting Your Return Policy

Post your return policy where people can't miss it. If you've got a store, post it at the cash registers and by customer service. Remember, the customer has to see it before making the purchase. If you've got a website, post it clearly in many places on your site. Appropriate places include customer service, your checkout section and your frequently asked questions list. You will have fewer returns if you customers understand your policy before buying and it will be less frustrating for them, you and your employees if you make it easy to find the information needed to make a return.

What Return Policy Do We Recommend?

We recommend a very liberal return policy. How does 100% satisfaction or your money back sound? Will it be too expensive?

A return policy has to be built to fit the realities of your business. It's easy enough to give cash back on a $20 retail item. What if your business has invested a lot of time and talent in a custom-made product or service and the customer doesn't want it?

Resolving problems works to your advantage. Statistically, businesses with that 100% satisfaction or your money back policy end up spending less than 2% of gross sales on fixing problems or taking back the merchandise. In many cases, the shelves can be restocked and that item can be sold quickly. Defective products are a no-brainer, unless the customer was clearly told before purchase that the product was defective and subject to final sale with no return. The most important part of your return policy, though, is that it forces you to pay attention to your customers.

Start a budget category for customer satisfaction. Find out how much time it takes to resolve problems, what you spend on repairs and other costs that go with resolving customer problems. There are a lot of ways that you can make your customers happy besides money - if you deal in high value services, you may want to give them some face time in a somewhat social setting by taking them to a sporting event or dinner. Or give them a gift certificate to let them know that you value their business.

Do It Quickly and Well

Software industry giant Microsoft has gotten into the games console business with the Xbox system that was released last November in the U.S. The consoles were in short supply and a number of them were dead on arrival Christmas morning. While these were well within the 2% possible failure range expected the customers have gotten uneven treatment in trying to get the product fixed. Frustrations have included delay in getting return boxes shipped and a support center that doesn't call back when requested, probably because it's a new business for Microsoft and the kinks haven't been sorted out yet. Microsoft uses outside contractors for Xbox customer support and unit repair. The company had anticipated selling 1.5 million units in 2001. If they had a 1% defect rate, that means 15,000 customers may have had a problem with a brand new unit.

Those Pesky Customers

What if a customer is trying to take advantage of your business? This will probably happen occasionally. Perhaps a customer will bring back a product that has been used and abused and ask for a refund. Or they will come in without a receipt on an item that has been sold at successive discounts.

Of course it is reasonable to place limits on the amount of wear and tear and to refund sale merchandise at the lowest price. Still, use your judgment on some of those "corner cases." Take the marked-down sale merchandise as an example. If one of your best customers comes in without a receipt and claims to have paid $80 for the product two weeks ago and the product is now on sale for $60, your best course of action may be to offer a $20 refund as an adjustment. Be careful in making the offer so that they "get" that you value them as a customer, not that the item was originally overpriced.

Thank them for telling you about the problem. Listen to their explanation. Ask them what it will take to make it right. Then do it. Do not be resentful or angry if you feel that they've gotten the better of you in an individual transaction. If you have repeated problems, though, with the same difficult customer, fire them. You can do it nicely by recommending a competitor that may give them more selection or attention.

Some customers buy a lot of things and return most of them to the store after checking them out at home or the office. If this creates a problem for you and your business, you may want to work with your sales staff either to narrow the selection sent for approval or to make your return process more efficient.

The value to your business is finding and solving your customer's problem before it becomes a problem for your business. Track your returns to determine WHY the customer needed an adjustment. It's okay to have a customer decide that they didn't want the product or they wanted a different brand. Making it easy for them to make that return makes it much easier for them to take your suggestion and upgrade to a different model. Fight them on it, and they'll likely take their business someplace else - anyplace else!

Push Authority to Make Adjustments To The Front Line

You know how you want to be treated when you've got a problem! Apply the golden rule and give your customers the service you'd want. Do you want to stand in line to talk to a customer service representative? Consider giving all of your employees the authority to fix problems on the spot. That's what Southwest Airlines does. That responsiveness has been key to Southwest's high customer loyalty and profitability. The rest of the airline industry often loses money. Southwest has been profitable every quarter since 1974. Southwest founder and chairman, Herb Kelleher, in an interview with the Chief Executive Group, said: "We tell our people, "Don't worry about profit. Think about customer service." Profit is a by-product of customer service. It's not an end in and of itself."

Employee Loyalty

According to Kelleher, each employee at Southwest Airlines is very focused on keeping costs under control, so they are not going to give away the store. You may be afraid that your employees will if you suddenly give them the authority to fix problems. It's important to set expectations and provide adequate training for new hires about whatever return policy you have. Changing your return policy requires information and training for your existing employees so that they can make your customers happy quickly and cost effectively.

Track Your Expenses To Find, and Eliminate, Problems

Once you've established normal costs of returns for your business you can look for ways to improve your results, both in customer satisfaction and in profitability.

Here's where you use your budget as a tool. If you find that an individual employee is signing off on greater adjustments than others, check it out. Usually, you'll find that the area in which the employee works has an underlying problem that needs to be fixed to reduce your costs. Occasionally, the employee doesn't understand the return policy and is being too generous. It is also possible for an employee to be using the return program for gain. If you discuss results with employees and they understand that you take an active interest in these expenses, you can help honest people stay honest and encourage bad ones to work somewhere else.

-Cindy Nemeth-Johannes