Posts Tagged ‘customer satisfaction’

When a manufacturer and retailer meet to discuss the selling of product, often the subject of returns comes up. The management of customer returns is as much a part of selling most products as shelf space allocations or package design. The methods that can be used to reduce the number of consumer returns are less often discussed than the policies and procedures used to govern them. This is unfortunate because the best way to reduce the cost of returns is to reduce the number of items that consumers present for return. This can and should be accomplished by education, precise, easily understandable instructions, and a common sense approach to meeting the needs of consumers. The practice of producing ever more strict returns policies will only turn off customers and, in the end, reduce sales. Retailers have proven this over and over again.

Let’s look at a few best practices that a manufacturer can use to help consumers avoid the need to make a store return.

• Helpful packaging, if the item needs to be assembled, let the picture on the carton be one that shows the whole unit, after assembly, in a clear way, hopefully from more than one angle. If the loaf of bread that the bread maker produces is round, don’t show a picture of a rectangular loaf of bread on the package.  Remember to use the package as your first line of defense against returns and your first opportunity to educate the consumer about your product.

• Instructions and package inserts, be certain that they are accurate and easy to understand. Do not let the engineers write, proofread, and approve the instructions. By all means try them out on executive assistants, spouses, warehouses workers or even an executive or two. Make sure that there are pictures that accurately reflect how the pieces fit together and how the unit will look at various stages in the assembly process.If it is a consumer electronic product, be certain that all the connecting wires or ends are color-coded and that the wires are bundled when possible. If it is possible to label parts or wires with a letter or number, by all means do so. Regular folks find that to be of great assistance in assembling a product. Note those facts in the instruction manual. All instructions and inserts should be written in multiple languages.  Use a brightly colored insert to ask consumers to call your 1-800 technical support line before returning the product to the retailer as well as printing it in multiple places in the assembly instructions themselves.

• Have an 800 technical support line.  The number should be on all instructions and box inserts that are available to the consumer. In large, clear fonts specify that customers must call the technical support line before returning the item to the retailer. The support line should be staffed when your customers are most likely to need it. That means evenings and weekends. This is the time when most of your customers will be assembling your products. It is always amazing to me when I see a support line open from 9:00am to 4:30 pm, Monday thru Friday. Make sure that the people who answer the phone can plainly speak the language. I know that overseas call centers are a popular means to control costs but when your customers are calling your help line they are generally already frustrated with your product. Do you really want to give them another reason to be upset with your company? Call the help line yourself, on different days of the week and at different times of day and night to see what kind of service you get.

To summarize, look at the ways to reduce store returns that have the most positive effect on consumers.  You will quickly see that making effective use of your packaging, instructions, inserts and 1-800 tech support lines are the most cost effective method of improving customers satisfaction and reducing product returns. These methods are time-tested ways to make the sale stick and keep customer returns to a minimum.

The best way to reduce the financial impact of returns is to reduce the amount of product that is returned by your customers.  Figuring out ways to actually reduce customer return is usually the first thing executive bring up when discussing what to do about the negative impact of returns, but it is usually the last thing they try to do anything about.

When faced with the challenge of actually reducing consumer return rates, the natural reaction for many executives is to tighten the customer return policy.  While this does reduce the amount of goods returned, it also greatly reduces total sales.  In fact, a study conducted by MIT Sloan found that a lenient return policy does tend to increase the volume of items returned but the ratio of returns to sales actually drops.  Customers see a lenient return policy as a way to mitigate the risk of buying so they buy more and return more items but much less as a percentage of total purchases.

If you look at other examples of companies that have adjusted their customer return policies over the years, the conclusions are clear.  Restricting customer return policies does much more to reduce SALES than it does to reduce the percentage of good returned. If reducing customer returns is the goal, the answer clearly is not to tighten up your customer return policy.  There are more effective steps that can be taken that actually will reduce customer return rates and they all happen to be much more customer friendly, which promotes sales.

The reasons for return at a high level are generally the same. Across every industry, regardless if the product is industrial or consumer goods, the most common reason for return is some form of customer remorse.  According to the National Retail Federation, United States consumers return over $194 billion in 2010.  Of this, $17.7 billion was from fraud and abuse.  Other studies have found that only 20%, or $40 billion of consumer returns is actually defective.

Clearly, the steps one would take to reduce the 20% of returns that are defective would be completely different than actions taken to reduce fraud and abuse.  If you treated the other 70% of customer who return goods like they were perpetrating a fraud, you would eventually go out of business.  The biggest opportunity to have a real impact on return rates is to focus efforts on reducing this 70% group of valued customers.

The first step in reducing the return rate is to identify the top 20 items returned by dollar value.  Once you have the top twenty identified, organize them by category or some other appropriate.

For complex items that require instructions and/or user guides to operate, get a copy of the instructions / user guides and read them.  You will be surprised how poorly many of them are actually written.  Take a new item home and ask your spouse to put the item together or use it.  Do not help them just observe them and take good notes.

Next, look at the trouble shooting section.  Where is the trouble shooting section?  Is it easy to find?  Is it easy to read?  Does it make sense?  Again, take good notes.

If there is a help line you can call.  Call it.  We worked for a client who sold a household appliance that had to be mounted on the side of the customer’s house.  When we called the 800 number that was on the carton to get help, we got a recording that said their hours were from 9:00 am to 4:00 pm Monday through Friday.  Our client was very surprised when we told them this.  Their target customer installs their item after work or on the weekend, when there was no phone support.  This was a quick fix for them to reduce the rate of return.

If items are in a box, put flyers that provide clear instructions to customers for common mistakes or questions.  Make the trouble shooting information easy to find.  Just because it is trouble shooting information doesn’t mean it should be a lot of trouble to find or figure out.  If instructions and guides are difficult to find, read, or follow, you will see return rates climb.

Packaging and labeling are often overlooked but could be a source of returns.  A number of years back when they first started selling bread makers for the home, the return rates were very high.   In fact, the first model had return rates close to 80% of sales.

The manufacturer was upset, the buyer was mad, and there were a lot of customers where were not happy.  It was a bad situation for all.  We were asked to sample a large group of returned bread makers and determine what the real reasons for returns were.

When we tested the bread makers, less than 5% were actually defective. We then noticed that on the bread maker’s carton was a picture of the bread maker on a nice kitchen counter.  Sitting next to the bread maker was a nice, brown, rectangular loaf of bread.  The problem was that the bread maker make smaller round loafs of bread.  The company changed the pictures on the carton, highlighted the fact that the bread maker made delicious, ROUND, loafs of bread, and sales took off and the return rate dropped dramatically.

For items sold online, check your labeling and the narrative on the net.  Also, according to Dr. Mark Ferguson at Georgia Tech, items sold on the internet that have customer reviews and comments, on average, have 20% fewer returns than other similar items without customer reviews.

There are customer friendly things that can be done to reduce customer returns.  Training sales employees is always a great idea and spending time examining an item’s instructions and packaging can yield surprising results.  Studying why products are returned and figuring out customer friendly solutions will increase your bottom line by reducing returns, while improving customer relations and sales.

According to an article published in the MIT Sloan Management Review, written by J. Andrew Petersen and V. Kumar, product returns cost companies over $100 billion or approximately 3.8% of profits every year.  They also note that the electronics industry alone spends over $14 billion on returns every year.

When executives realize how returns impact sales, many will do what seems to come naturally and that is to reduce the volume of returns by tightening up their customer return policies.  Many go so far as to institute anti-customer strategies such as restocking fees, reduced time limits on when goods can be returned, complicating the return authorization process or simply deny all returns.  Many of these tactics are effective in reducing the volume of returns in the short run.  However, most of these measures have a detrimental impact on sales and profits as well that may not be immediately visible.

Petersen and Kumar studied six years of purchases and customer returns data from a nationally known catalogue retailer.  They found that a lenient return policy does NOT drag down sales but in fact promotes sales growth.  They found that even with a higher return volume, the impact on the bottom line was positive.

The results seem counter intuitive to what many think when looking at customer return policies.  Because of the huge financial impact of returns and the obvious impact on a company’s bottom line, many companies attack the problem by restricting customer return privileges which has been proven time and again not to work.  What many find out, much to their latter disdain, is that when companies restrict customer return privileges they are in fact restricting sales and encouraging their customers to go elsewhere.

In the fall of 2010 Best Buy realized that having a restrictive customer return policy was having a negative impact on sales and this strategy was driving customers away.  For a number of years Best Buy had one of the most restrictive returns policies in the US retail market.  They would not take back some returns after a specific time periods at all and would often charge restocking fees when purchases were retuned within the prescribed time after the initial sale.  The result was disappointing sales figures for November of 2010 and a warning about the forth quarter results that pulled the rug out from under Best Buy’s stock price.

However, Best Buy didn’t sit back and hope for miracle.  Immediately following their poor numbers, they announced they were easing customer return policies and eliminated many of their restocking fees.  This all took place just a few days before Christmas of 2010 and it provided a welcomed shot in the arm that helped December’s sales recover. (Click here to read Best Buy’s current return policy.)  This relaxed return policy reduced the risk of a bad purchase for Best Buy’s customers.  This is a clear illustration of the link between a company’s return policy, sales and value.

To a customer, the return policy is really about limiting risk.  For the majority of buyers, the return policy is not about abusing the company that sold them the product.  It is about buying something with some assurance that if the item does not satisfy their need they can return it and get the a different item that will satisfy their need. A study conducted by the National Retail Federation found that less than 9% of returns were fraudulent.  That is less than 1% of total sales. However, many customer returns policies are written like the almost all customer returns are fraudulent. All to often the return policy reads like it was written by the VP of Sales Prevention.

The study conducted by Drs. Petersen and Kumar found that when return policies are less restrictive, customers tend to make more purchases.  We believe that this is true and it this happens because the customer’s risks are limited by the customer friendly return policy.  In addition, a liberal returns policy increases sales because the returns experience provides the seller an opportunity to interact with their customer.  This is the critical point to satisfy your customer in the short term and improve your long term customer relationship.

A company’s return policy says a lot about who they really are and how much they really care about their customer. What many fail to understand about customer returns is that the more they return, the more they buy.

Someone once said that the only way you can change the way you act is to change your perspective.  This is true in in life and in business.  One of my favorite stories to illustrate the impact of perspective is the story of a friend of mine named Danny Parker, a Minister at Orchard Hill Church in Pittsburgh.

When Danny was studying to become a Baptist Minister he needed a job during the summer to help pay for school and he wanted to spend the summer working close to a Florida beach.  He bought a bus ticket and was soon on his way.  On the long ride down to Florida, Danny decided to put his faith to the test and take the first job he saw with a  “Help Wanted” sign in their window.  Danny was a trusting soul to say the least.

As luck would have it, when he got off the bus the first “Help Wanted” sign he saw was for the local porta-potty company.  For the next few weeks Danny cleaned porta-potties, by hand.  When he told me this story, some thirty years later, he said “I learned two important things that summer.  First, there is no job that I am too good to do.  We should all be humble regardless of what our job is.  The second thing I learned was that most people don’t chew their corn.”

There are many reasons I respect Danny Parker. One is that he is a man of great faith.  The second is that he always has a unique perspective on life that everyone can appreciate.

While porta-potties and corn have nothing to do directly with reverse logistics, it does illustrate the point of the value of perspective.  Reverse logistics can provide great insight into many aspects of your companies business, if you have resources focused on developing that perspective.

Studies have shown that companies that are considered best-in-class in reverse logistics have, on average a 12% higher customer satisfaction rating than their competition.  That is a significant differentiator for any company.  Clearly there are a number contributors to customer satisfaction.  Reverse logistics is one part of a larger overall program but it’s importance is often overlooked.

A strong returns management program will influence every aspect of the customer experience from improving the package and design of a product, to properly communicating the refund policy, to providing alternatives to help satisfy the customer.  However, to apply the lessons that can come from managing returns, you have to work at it and you must have a dedicated team working with operations, sales, merchandising and others.

Reverse logistics must have a seat at the table and a voice in all aspects of the business.  Reverse logistics executives are often kept to processing the returns only and have no input in other areas such as vendor agreements, disposition rules or developing a more customer friendly return policy.  These leaders could bring valuable information to the table that could provide insights that would have a great impact on the customer.

The key is to take a team approach.  For example, too often, the customer return policy and front end process is sole responsibility of Loss Prevention or some other department that is more focused on preventing theft than satisfying customers.    As a former internal auditor for Wal-Mart I understand the need for prudent policies to protect against abuse, however, one must remember that the majority of customers that return goods are not thieves.  Further, if that customer has a bad experience in returning an item, they will tell nine other people about their customer.  Studies have also found that if the returns experience is good, they are twice as likely to buy in the future and tell more people about their p leasant experience.

Before an effective customer return policy can be developed, information on what is returned, why it is returned, and the relative impact of the returns must be analyzed.  Do you really want to write a policy based solely on anecdotal evidence provided by somebody whose job is to catch shop lifters?  They should be part of the team but not the only voice that counts.

Similarly, a company can’t really decide if an item is a winner until they factor in not only the sales but the return rates, reason for returns, and customer comments.  Reverse logistics completes the picture and provides the needed insight to make future decisions that impact what you sell and most importantly, customer satisfaction.

Reverse logistics, or returns management, is often an overlooked link in a company’s supply chain. For the majority of supply chain executives, the returns processing department is that dirty, disorganized part of the warehouse that they don’t even like to walk by, much less do anything about. It is difficult to get excited about reverse logistics because returns aren’t pretty and the impact on the company is not clear.   It is hard to overcome “ugly and confusing” without a significant reason to do so.

However, according to a February 2010 study by The Aberdeen Group, companies that were considered best-in-class in returns processing averaged a 93% customer satisfaction rating. This was 12% higher than the lower 80% of companies surveyed.

The lesson is clear. Focusing on returns processing, aka reverse logistics, pays off in better customer satisfaction and that will directly increase earnings.

The National Retail Federation reported the rate of return for 2009 was over 8% of total sales. That same survey reported that 58% of retailers that participate used a manual system to track returns.  For manufacturers, the picture isn’t any better.  Again, the 2010 study by The Aberdeen Group reported that the cost of processing returns for hard goods manufacturers can range from 9.0% to 14.6% of sales.  Just like their retail counterparts, over 60% of the companies had no tracking system and called out the need for visibility as the major gap in their reverse logistics program.  Both retailers and manufacturers rated returns management as “very important”, yet in many companies, reverse logistics is virtually ignored.

Look at the implications of these two studies from the  reverse point of view.  Returns average over 8% of total sales, cost anywhere from 9% to 15% of sales to process, impacts customer satisfaction by as much as 12%, yet virtually ignored by executive management around the world. The question is “Why?”

Why would top leaders, captains of industry, ignore a function that could improve customer satisfaction by 12% or more. Why would companies known for their controls and discipline allow 8% of their inventory go to waste and fall off the grid? Why would corporations known for their ability to focus their team and execute strategy ignore a process that costs 9% to 15% of sales?

The answer is perspective and resources. Perspective can be difficult because few look at returns process or think reverse logistics pipeline. A CEO may see that their return rate is up from 8% to 10% during Christmas, but few have visibility to the total cost of processing those returns.  Every senior executive understands the importance of communications when interacting with customers who are returning a product but few look at the return policies and associated procedures to see if they are causing customer dissatisfaction or creating trouble with their suppliers.  Often when companies do take a look at the reverse pipeline, they are reluctant to commit resources to improve the processes.  Even if they did focus their talent and resources on returns, most companies don’t know where to begin or have the valuable experience to address the issues with improvements that will put money on the bottom line.  For many, the result is that reverse logistics gets ignored and neglected.

If your company hasn’t examined their reverse logistics processes in over the last couple of years, or if you are a senior executive asking yourself basic questions like “I wonder how we handle returns?” you have a big opportunity to increase customer satisfaction, reduce expenses and drive profitability sitting right under your nose.

In this podcast, Curtis Greve covers recent studies that show the impact of reverse logistics on customer satisfaction.  Did you know that companies that are considered in the top 20% in terms of reverse logistics capabilities have, on average, a 12% higher rating in customer satisfaction than the lower 80% of companies?

Also, according to a study conducted by Harvard Business Review, for each 1.3% improvement in customer satisfaction, sale increase by 0.5%.  Extrapolated, this gives companies that are considered best-in-class in reverse logistics programs almost a 5% increase in sales.

Listen to today’s podcast and learn the four key areas that companies need to develop to improve their reverse logistics program and how that will lead to improved customer satisfaction and sales.

The Reverse Logistics Podcast

Your host is Curtis Greve.

The Reverse Logistics Podcast

Your host is Curtis Greve.

Reverse logistics was born from the desire to improve customer satisfaction. As competition increased and the living standard improved after World War II, customers demanded better quality and service.  As a result, people started to return items at a greater rate.  Retailers and manufacturers, seeing an opportunity to gain or keep market share eased their return policies.  For many companies, such as Wal-Mart, this was way to differentiate themselves to the customer.

In the mid 1980′s, when I was responsible for Walmart’s reverse logistics operations, I received a call from Sam Walton’s office.  Mr. Sam wanted a returned item that was an outrageous example of an item that had been returned and money refunded to a customer.  He was going to use it at an upcoming store manager’s meeting.   I went out on the floor and found a Stanley Thermos that we had recently processed from a store. On the bottom of the thermos there was a date stamped showing the date of manufacture – 1954. The first Walmart store didn’t open until 1962.  I grabbed the thermos and the store return tag and sent it over to Mr. Sam’s office.

A few weeks later, at the Wal-Mart Store Manager’s meeting, Mr. Sam held the thermos up and asked the store manager that had given the refund to come up on stage. The nervous manager walked up on stage and stood beside  Mr. Sam.  Mr. Sam shook his hand, thanked him for doing a great job and then praised him for providing such great customer service.  This guy understood that taking back a return wasn’t about a $20 thermos, that had clearly not been bought at Walmart.  It was about customer satisfaction.

All the managers in the attendance got the message.  Over the next few months, the volume of Wal-Mart’s returns increased significantly, as did sales, earnings, and market share, all which were the result of keeping customers happy, one return at a time.  By the way, that same Stanley Thermos is now on display in the Walmart’s Visitors’ Center in Bentonville Arkansas.  The message lives on.

Reverse logistics is all about customer satisfaction.  In a study published by the Aberdeen Group in February 2010, out of the 160 enterprises examined, those companies rated in the top 20% in terms of quality of reverse logistics program had an average customer satisfaction rating of 93% compared to the other firms ranked in the lower 80%, whose average customer satisfaction rating was 81%.

In other words, companies that had well developed reverse logistics programs were ranked significantly  higher in customer satisfaction.  Interestingly, the same study found that for both, the top 20% and the lower 80%, the cost of reverse logistics, as a percent of total service operations costs, were within 1%.  The point being, it isn’t about spending more money to process returns.  The difference is in how and where you spend the money you invest in your reverse logistics program.

Every executive understands the positive impact of improving customer satisfaction.  Sales grow, customer turnover decreases, over all moral improves and earning go up.   This study proves that there is a direct relationship between customer satisfaction and reverse logistics.  Reverse logistics can help both top line and bottom line results through processes  that improve customer satisfaction.

In a recent newletter from Harvard Business Publishing the importants of quality and customer satisfaction was never more clear.  When you compare the current financial situation of GM, Chryser, Ford, Toyota, Honda, and BMW, it really boils down to quality and overall customer satisfaction.

JUNE 10, 2009
GM’s Customer Satisfaction Challenge

77% of Americans who own imported vehicles are satisfied with their vehicles, compared to 69% of those who own domestic vehicles. 86% of import owners would recommend their vehicle’s brand to a friend or family member; 75% of domestic owners would do the same.

Source: Smart Money: The Effect of Education, Cognitive Ability, and Financial Literacy on Financial Market Participation