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The Five Phases of Product Returns

The Five Phases of Product Returns

by Bill Stuart, CEO of Stuart & Associates, Stuart & Associates

Reverse Logistics Magazine, Edition 77

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A Cultural Shift in Returns
The product returns management strategy you implement makes a definitive statement about how you choose to run your organization, from manufacturer relationships and loss prevention to training and customer care.

A returns process is more than just a series of steps to take back merchandise. Rather, your approach to returns impacts your entire operation, from the sales floor all the way up to the corporate office. A process that has such wide-reaching consequences requires thoughtful planning, anticipation, and precise execution.

If you’re not doing something to actively address product returns management, or if you still see the customer with the problem as a problem customer, you’re setting up your organization for failure.

Returns are a part of the retail landscape, and with changing attitudes toward gifting—nearly 62% of holiday shoppers in 2011 said they provide a gift receipt most or some of the time—this aspect of customer relations isn’t likely to disappear. Consumer expectations when it comes to smooth returns are increasing.

At Stuart & Associates, we’re the nation’s leading authorities in return reduction strategies, serving major retailers and global manufacturers. We’ve seen dramatic improvements—up to 25% reduction in product return ratios—through our practical and tactical patent-pending process. We’re pleased to share some of what we’ve learned here, to help you minimize returns and improve your customer experience.

The Five Phases of Product Returns
A product return is not a single act. It’s a process that begins long before the merchandise even reaches your shelves. If you want to reduce your rate of returns and improve the customer experience at your stores, you must step back from the narrow view of a return and see the bigger picture that encompasses the five phases of the product returns process. Successful management of this process requires you to proactively address each phase specifically, consistently, and effectively.

Let’s take a closer look at each of the five phases.

Phase One:
A retailer buys a product from a manufacturer.
That’s right. The return process begins when you purchase the merchandise from your manufacturer. Are you thinking about returns during negotiations? If so, are you limiting the conversation to who is responsible for what types of returns?

Too often, retailers and manufacturers confine their communication to finger-pointing and negative, slugit- out arguments over return policies. This kind of adversarial approach only leads to negative outcomes.Remember, you’re on the same side: You both want a happy customer.

Instead of entering negotiations on the defensive or, worse, on the offensive, approach them in the spirit of participation. How can you both participate in the process of returns? How can you both play an active role in seeking to satisfy the customer?

Working together with a manufacturer to establish terms that are both realistic and agreeable to both parties will go a long way to making your own returns process errorfree and pleasant for all involved. So drill down into some more specific points that often result in barriers to customer satisfaction:

• First Steps: Have you clearly identified what you want the customer to do when they have a question or a problem? Do the product, the information on and in the box, and the salesperson clearly communicate this process? If you instruct the customer to take an action, such as contacting a call center, is that truly the most efficient way to resolve the problem? Don’t take the easy way out. Take the effective way.

• Communication Breakdowns: How will you capture and communicate customers’ usability issues? How will you disseminate these findings throughout the organization? How will teams in product development, packaging, in-store displays, and sales product training address these issues? Do you have a plan in place for each area? If not, returns will continue and sales will eventually decrease as a result of customer dissatisfaction. Knowing what makes the customer unhappy does you no good if you’re not prepared to take action on that knowledge.

• Materials Review: Are the instructions in and on the box up-to-date? Are the instructions on the website up-to-date? Are they written at or below a sixth-grade level for easy readability? Does the website guide your customer to easily find a solution? Are quick-start guides readily accessible? Many customers hesitate to call for help. Are the instructions and packaging directions actually easy to use? You probably think you made them easy to use, but how do you know for sure? Do you have videos on your website on how to set up and use the product? Have you done everything you can to meet their needs and make them feel secure?

Retailer/Manufacturer Relations
Address these broad issues together:

• What customers should do when they have a problem
• How to determine what caused the real or perceived problem
• What effective measures you can implement to prevent the problem from occurring again

Before your next vendor negotiation, sit down and have a strategic discussion with your team leaders. The goal is to create return solutions that your vendors will find easy to understand and beneficial to their own systems and processes. This extra effort on your part is an investment in a long line of events that should result in customer loyalty.

Then focus with manufacturers on the problems that are causing returns as well as your suggested solutions. Work together to implement training for sales, service desk, repair service, and delivery personnel. Retailers and manufacturers are jointly responsible for the consumer experience.

Phase two:
The customer purchases the product.
How many things can go wrong at the point-of-sale?

Perhaps the customer buys a product from an undertrained employee, so the item doesn’t actually meet the customer’s needs. Or maybe the employee is pushing for a sale and doesn’t have the proper customer care skills to focus on anything but making numbers. Or there could be a breakdown in the sale of an extended service plan that causes the customer to have second thoughts.

There are countless ways a sale can go wrong and still go through, resulting in a return in the coming days. You have control over many of these causes, specifically customer relations. As a retailer, you can focus on training and human resource components that enhance the customer experience.

Are you training your salespeople on selling properly, deepening product knowledge, addressing returns, and empathizing with concerns? Specific return training pays dividends when it comes to aiding salespeople at the point-of-sale to prevent issues down the road.

Customer experience management doesn’t stop with the sales staff. Pay attention to packaging and shelf signage – your silent sales force. Sales strategies often underutilize these collateral aids.

You’ve heard that everyone in the building is responsible for sales. Perhaps you’ve even told your staff that very same message. But have you considered the reverse is true? Everyone in the building is also responsible for returns. To that end, review all job descriptions and responsibilities looking for the mention of product returns. Consider adopting a returns process training format for all departments and aligning your employee appraisal and compensation plans with your return reduction goals. Most retailers overlook this critical issue in all departments beyond the sales floor.

Phase three:
The customer experiences a perceived problem.

While it may seem that you have little or no control over what happens once the customer leaves the store after a purchase, there are some essential questions you can ask to ensure you’re doing everything you can to keep that product in your customer’s possession.

• What specifically do you want the customer to do once they have the product?
• Is that action the same or different than the manufacturer’s desired action?
• Is it clear to the customer what he or she should do?
• Does the customer know what steps to take to properly address a potential issue?
• Are the steps clearly stated and easy to take?
• Does the process of reporting a problem or asking a question go smoothly?

By filling in any gaps in point-of-sale training and adjusting or updating language on your website and in-store materials, you should be able to set expectations with customers that they can carry into their homes once they’ve purchased a product. And while you can’t control customers’ tastes, you can set them up for success by managing their expectations.

Setting Customer Expectations
Your job is to set reasonable expectations with customers while they are in your store or on your website. So ask yourself these questions:
• Did you properly educate the customer during the sale?
• After the sale, did you provide the customer with instructions on what to do next and what to do if a perceived problem occurs?
• Are the instructions posted on your website the same as those on the manufacturer’s website?

Phase four:
The customer returns the product to the retailer.
Approximately 30% of all customers who make a return leave your store with cash or credit. They do not buy a replacement product. So let’s take a look at how you might be able to save this sale.

When a customer walks back into your store with a return, they’re expecting to duke it out with a customer service representative. They’re expecting push-back about their reasons for returning the item, so they’re preparing their story. And they’re dreading a long line at the customer service counter.

If your employees are not trained to handle someone walking into your store with this mindset, you’ll lose not only this sale but the customer’s future business and most likely the business of their friends and family to some extent. Dealing with people in this mindset requires empathy—a skill that can be taught. Saving a customer experience, despite the customer’s expectation that it cannot be saved, will decrease the chance of product returns and increase the chance of customer loyalty.

After implementing a returns training program that goes beyond the actual steps of handling a return, test your associates’ success with a mystery shop program that requires a return. See if the customer service counter can save the sale, induce a replacement sale, or at the least, save the relationship by ensuring a satisfied customer.

Phase five:
The retailer reclaims the merchandise.
Sometimes, you cannot avoid returns. You will have to accept merchandise back into your inventory, but there are actions you can take to mitigate the loss.

Approximately 75% of retailers fail to handle returned products with the same care they would brand new ones. When a customer returns an item to your store, it isn’t always damaged, which is good news because you own that merchandise again at full cost. However, through improper handling, the damage to a product reduces its value.

If you walk into your returns area, you will most likely see a careless, even reckless attitude toward returned merchandise. Create a plan for minimizing handling, protecting packaging, and recovering some of your financial loss.

In addition to mishandling product returns, many retailers are improperly tracking merchandise within the store, failing to identify returns in their inventory, which affects replenishment. Do you have a display and liquidation program for returns and markdowns that includes goals for each area? How do you sign these items? This is a big area of opportunity. Do your associates know the goals when it comes to returns in their area?

Take the time to address these issues with both your team leaders and your associates to come up with systems that protect the value of your merchandise and the integrity of your company and manufacturer. You’ll improve the customer experience and vendor relations, which otherwise might have been lost through sub-standard returns practices.

More Than the Cost of Doing Business
To affect lasting change in lowering return ratios, retailers must perform a fundamental shift in their mindset. Returns are more than “just the cost of doing business,” as so many people say. This is an outdated way of thinking.

Returns are costly to everyone involved, and in the end, they can cost you customers. According to industry statistics, the percentage of people who would spread the word about a negative customer service experience skyrocketed from 67% in 2006 to 84% in 2008. And over the last few years, the proliferation of social networks makes sharing this kind of negative experience easier and faster than ever before.

The price of keeping your existing customers happy is much lower than the cost of gaining new ones. But since a third of all customers who make a return leave the store with either cash or credit, you and the manufacturer are losing existing customers somewhere in the returns process.

It’s time to stop reacting to returns and instead start building a plan for them, just as you plan for sales.

The first step is to get real about how returns are impacting your organization. How much insight do you have and what do you do with that knowledge? We recommend retailers begin an intensive review process to get a better picture of the scope of their missed opportunity. Here are a few thought starters that will help you initiate a strategy for effective product returns management:

• How much did product returns cost the company in profits last year?
• What does the returns trend look like over the last three years?
• What is the rate of return by sub-line each month?
• How many customers did returns impact?
• How many customers did you lose due to the process?
• What variables caused the rate of return to increase or decrease between years?
• Who has financial responsibility for returns?
• What happens to products after they are returned?

Instead of reacting to returns once they have occurred, retailers must devise a comprehensive plan for lessening the impact of returns from the very beginning.

Returns Aren’t a Product They’re a Person
Returns occur for a variety of reasons: a misunderstanding of needs, poor scheduling, poor service after the sale, and product quality problems. Sometimes the consumer doesn’t understand how to use the item properly or causes damage to it. But one thing is consistent across all transactions: Returns are about people, not about products.

We like to say that the customer with a return is not a problem customer—he or she is a customer with a problem. Returns are just sales in reverse, so the emphasis at the customer service desk or on the helpline must be the same kind of customer care as on the sales floor.

If you’re spending millions on store design, technological advances, and merchandise training but you’re not looking at the continued development and training of your people and their customer interaction skills, then you are diminishing your return on investment.

Does your customer service counter offer the same attitude of gratitude to the customer when they walk in the door as the sales teams do? Remember, the customer is likely approaching a returns situation with an emotional mindset. Your helpline operator or customer service associate is the ambassador for your business and, in many cases, the last impression the customer will have of your company.

Are you modeling the qualities you want your associates to possess and practice with your customers? Consider your current leadership style. Are you providing solutions that are not only practical and profitable, but also elevate the everyday or mundane to new heights? The end result of effective leadership is good sales and customer service across all departments.

Who Is Managing Your Returns?
If you’ve gotten this far, chances are returns at your organization are either on the rise or aren’t improving to your liking. It’s time to examine your overall returns program, how it’s managed, and who is in control.

In any product’s life cycle, there are two sets of logistics: forward and reverse. Forward logistics refer to the supply chain from development through distribution. Reverse logistics refer to the aftermarket supply route, which brings product returns back to the manufacturer as efficiently as possible.

To improve reverse logistics and find alternative solutions to avoid costly handling and shipping of returns, you’ve got to determine the effectiveness of the current strategies. We recommend asking the following questions of your organization’s leadership:

• Who manages your returns reduction program? A single person should be ultimately responsible for following product returns from the design stage all the way through to return liquidation. The same person should be developing a returns strategy for each level or department of the organization.
• When a customer purchases a product and has a perceived problem once they get home, what is the first thing we want that customer to do? You should have practices in place to ensure the desired action will happen.

Pay close attention to the answers you receive to these questions. If you get insufficient supporting data or you discover inconsistencies in the answers, then the good news is the potential for increasing profits via reverse logistics is significant and attainable.

Most executives focus their attention on improving top line revenue via designing new product, penetrating untapped markets, and forecasting market share changes. But these forward-facing functional areas neglect the development and implementation of reverse logistics strategies.

Of course, the goal is to keep products out of the reverse logistics process altogether. Your organization may be wasting staggering amounts of time and money on repairs, customer service, field service, warranty fulfillment, shipping and handling, and even recycling.

By seeking expert input on a comprehensive return strategy, collaborating among functional areas, and implementing specialized employee training, you may never incur many of these costs, you’ll reduce returns, improve manufacturer relations, and enhance customer loyalty. Then the savings can be reinvested back into the growth of the company.

Your Product Returns Management Program
The main reason companies suffer negative financial impact from returns is their failure to manage product returns as a business. Maximizing profits and improving the customer experience are possible by understanding the financial importance of planning, handling, and effectively executing a product returns management program.

To make such fundamental changes to your organization’s culture, you need a strategic partner who will guarantee results.

At Stuart & Associates, an international consulting company to Fortune 500 companies as well as to local and regional retailers, we’ve made it our business to cultivate world-class returns reduction strategies, extended service plan programs, and training seminars to boost sales and profit margins amid ever-increasing competition. And, we do this in large part by using our patent-pending ARDIT process, which teaches our clients innovative and proactive approaches to product returns issues across all five phases.

After performing a needs assessment, the final part of the process is the development of a customized training program for both associates and management teams to help galvanize your organization at every level.

To learn more about how Stuart & Associates can transform your product returns management program and help you make your customers feel like the most important people in the store, contact us for a no obligation strategic review.
Call us at 615-289-0007 or visit us
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