The current economic conditions are causing many companies to revisit their business beliefs. When we are in the midst of good economic times, it’s easy to be profitable despite of processes that are not as efficient and airtight as they should be. However, in times of economic disarray profits are declining and the time is now to remedy those business practices which are grinding down profitability and potential growth.
The primary area which is most often neglected is returns. Businesses all realize and try to account for customer returns, which can occur for a variety of reasons. It represents a reduction in revenue and an unwanted increase in logistical costs. How a company handles their returns will have a palpable affect upon the bottom line. During demanding economic times, a company must control both sides of the profit equation – revenue and costs.
There are six ways to control this equation. Each one to be discussed in detail below:
- Happy Customers
- Brand Equity
- Secondary Markets
- Streamline Return Policy
- Receiving Returns in a Timely Fashion
Happy customers cannot and should not be over emphasized. The costs of searching for new customers usually outweigh the cost of keeping present customers. Returns signify a level of customer dissatisfaction with either the product or service or perhaps both. Even more so, there are customers who view the return process as aggravating. Never underestimate the power of a poorly handled return situation as tipping the balance towards eroding customer loyalty. One needs to view a return situation as a red flag on the customers’ satisfaction index. A lack of a customer satisfaction index points to an area for immediate improvement.
Long term brand awareness is nothing to ‘sneeze’ at and will be maintained through a proper return policy. Returns that are recycled and put to environmentally responsible used can only augment the firm’s reputation in the consumer marketplace.
Secondary markets can allow for a useful revenue stream that was often overlooked in the past. Consider to what extend the returned products can be refurbished or rebuilt to a sellable condition. There will be costs to accomplish this but the margin gained can create a significant revenue stream.
Reclaiming products or parts that can be reutilized in the supply chain can reduce the cost of goods sold. The firm has already paid for the raw materials and does not have to procure again or completely transform the product/parts to gain additional revenue.
Logistical expenses can be lessened with effective and efficient return management policies. Customer service costs can be reduced if the return process is streamlined from the customer’s perspective. Additionally, encapsulating statistics concerning the reasons for the returns can be used to improve the product or service, thus reducing waste costs.
Companies must be aware that some returned products do not age well. This issue requires that returns are received in a timely fashion so that alternative uses can be found. Otherwise, the only option is to write the product off. This is especially true for seasonal or short life cycle items, where end of season returns has little possibilities for substitute forms of use. In these scenarios making earlier decisions about inventory dispositions can provide for the inventory to be reused before it becomes obsolete.
Effective return management procedures will aid in the search for profitability and add real value to the organization.