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Wednesday, 18 July 2012

Product Returns Management

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product-returns-management-strategyProduct Returns Management: A Major Retailer's Strategy that Delivered Financial Value Across the Entire Organization?

The Product Returns Management Strategy implemented by a nationwide retailer makes a definitive statement about how they choose to run their organization. Your returns strategy not only impacts your customer experience management process -- but also employees on your sales floor all the way up to the your corporate office. Focusing on product returns management (by way of both volume and impact) without alienating end customers requires thoughtful planning, anticipation, strategy, and precise execution!

How Anticipation Led To Reduction in Product Returns

What causes product returns? Could be poor sales transactions, scheduling, delivery, service after-the-sale, or product quality. How about the end customer experience or their inability to operate the product? The reasons are numerous. But, the real question to ask yourself is “how much insight do we have and what do we do with that knowledge”?

Instead of reacting to product returns once they have occurred, retailers must devise a comprehensive strategy for lessening the impact of product returns from the very beginning. We recommend retailers begin an intensive audit process to bring the scope of their opportunity into focus. Here is a small sampling of the questions we use to initiate the process of effective product returns management:

  • How much did last year’s product returns cost the company in profits?
  • What is the returns trend for the last 3 years? 
  • What is the rate of return by sub-line by month?
  • How many customers did this impact? How many customers were lost due to the process?
  • What variables caused the rate of return to increase or decrease between years?
  • Who has financial responsibility for product returns? (not the person who physically handles the returns)
  • What happens to product returns? (i.e. open box, destroy locally, RTV, etc.)

Answering these questions in a thoughtful and meaningful way provides the data necessary to aggressively reduce product returns by as much as 25 percent via each of The 5 Phases of Product Returns.

Bill Stuart, CEO of Stuart & Associates said, “a successful product returns reduction strategy begins with a deep analysis of a retailer’s sales and return histories, return procedures, return tracking and reporting, as well as returns handling and processing. These data points are valuable in determining how best to manage and ultimately reduce product returns moving forward. Based on our experience, all of these activities facilitate a cultural shift resulting in lower returns, greater customer satisfaction, improved vendor relations, payroll savings -- and best of all -- a rapid return on investment”.

The 5 Phases of Product Returns

Successful product returns management requires proactively addressing what we call the The 5 Phases of the Return. They include:

Product Returns Management - Phase 1: retailer buys product from electronics or appliance manufacturer: nobody likes to talk about the eventuality of product returns. Returns are the ugly, negative, slug-it-out part of the negotiation. There can be finger pointing -- and that leads to negative outcomes! You must be prepared to have a strategic discussion with your manufacturers so solutions are available for your vendors to participate in.

Product Returns Management - Phase 2: the point-of-sale and end customer experience management: a retailer can oftentimes overlook the training and human resource components necessary to ensure end customers have a rewarding experience -- especially when a retailer has hundreds or thousands of stores across the country. What is the training and education strategy necessary to develop selling skills, deepen product knowledge for your employees, and does it include specific product return training? In addition, product packaging and shelf signage are key because they are your silent sales force and often underutilized. 

Everyone within your organization has some level of responsibility for product returns as well as sales. You should review all job descriptions and responsibilities -- are product returns even mentioned? In our experience, about 90 percent of retailers overlook this critical step. And are your return reduction goals in sync with your employee appraisal / compensation plans? As Jim Collins astutely addressed in his bestselling book, Good to Great, it is critical to have the right people on the bus and to ensure the bus is being driven in the right direction.

Product Returns Management - Phase 3: end customer experiences a perceived problem: now what? What is your plan for keeping the product in your end customer’s home. What specifically do you want the end customer to do? Is that action the same or different than the manufacturer’s desired action? And is it clear to the end customer what action he or she should take? 

You have an opportunity (and the responsibility) to properly set EXPECTATIONS with customers while they are in-store and on .com. This requires educating customers both during and after the sale. For .com, the expectations posted on your website, and the website of the product manufacturer, should mirror one another. When a sale is made on .com, customers should receive a quick list of what to expect along with their receipt. 

Product Returns Management - Phase 4: end customer returns to retailer with the product: customers with product returns come to the store expecting to do battle to get their hard earned money back. How have you trained your people (other than the functional steps of processing returns) to save a customer experience and decrease the chance of product returns? A little known fact -- 90 percent of all retailers fail to properly train employees how to save the sale and/or test the effectiveness of their training by including returns handling as part of a mystery shop program.

Approximately 30 percent of all customers who make a return leave the store with either cash or credit -- but no product! Ouch! And -- if a customer experiences a problem with a product, they do not see it as a product problem. It is a retailer problem. Which means they may NOT buy from you again. This can become very expensive, very fast if you haven’t planned for it!

Product Returns Management - Phase 5: retailer accepts the product back as a return: now you own the product returns, again. And you own it at full cost -- just like the new products on the shelf. BUT, 75 percent of all retailers fail to handle returned products with the same care as new products, thus damaging the products and reducing their value. Take a look at your product returns area and see if it’s not true! What is your plan for maximizing your financial recovery and minimizing handling. Are product returns and markdowns being tracked properly inside the store? Is there a display and liquidation program in place? What is the return goal by area of the store? Do your associates know the goal? Are you sure?

Maximizing profits and the customer experience is possible by understanding the financial importance of planning, handling, and effectively executing a product returns management strategy. Learn more about how the experts at Stuart & Associates apply their proprietary process for product returns management strategies, why the strategies work, and how precise execution can make the customer with a return feel like they are the most important person in the store.


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Bill Stuart

Bill Stuart is CEO of Stuart & Associates, a retail consulting firm specializing in Sales and Margin Growth Programs and Returns Reduction Programs.

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