Tuesday, February 27, 2007

Many Happy Returns

Or, I hope not so many returns, but when there are returns on rare occasions, our customers are happy and will still be willing to do business with us in the future and may recommend our products to family and friends.

Initially, we will probably only sell our products directly from our Website. That may change in the future if we can build an effective sales channel with distributors and/or dealers. When we sell direct to customers from our Website, we will need to meet their expectations regarding returns and warranty service. Since people won't normally have the opportunity to audition our products at a local dealer, we will need a fairly liberal return policy. However, if some people abuse this policy, we will lose potential revenue and may have to offset it with higher prices.

Quite a few years ago, I purchased the complete inventory of a high-end Hi-Fi dealer. Actually, they went bankrupt and I purchased their stock from the bank. I planned to keep a few items and knew that I could sell the other stuff and almost break even. Anyhow, it was my first experience with selling stereo equipment and I learned that the Hi-Fi business is not easy. I sold the stuff out of my basement or traded with real dealers in the area. I got to know a few of these dealers through my trading and learned just how challenging it is for them. Some of their customers take advantage of the dealer's return policies to the point where it becomes somewhat of a game. One of the people who was interested in a pair of my speakers asked me to deliver the speakers to his apartment because he didn't have a vehicle large enough to haul them. When I arrived at his place and carried them into his room, I learned that all the other equipment was on loan from other dealers. He explained that he had been auditioning equipment for over a year and didn't find the right combination to suit his tastes. The dealers told me that this wasn't really that unusual. Most of them limited the time period to a week or so, but there were some that allowed the customer to keep the equipment longer if they were confident that it would eventually lead to a sale. I've also read several comments on audio/video forums from people who like to audition a lot of different preamps, amps and speakers.

To be honest with you, the potential for abuse has me a little worried. If an item is returned, you can't sell it to someone else as a new product even if it still looks perfect. If the item is damaged, you may have other costs associated with refurbishing.

One of the most successful online companies, Dell, has a 21 day return policy for most of their products. For some items the return is limited to within 14 days and others go up to 30 days. On the Dell website it says you can return items for a credit or refund of the purchase price, less shipping and handling and restocking fees. If the product is not defective a restocking fee of 15% is applied. The items have to be returned in original packaging with all documentation, software, cables, etc. Another online company, Outlaw Audio, has a 30 day satisfaction guarantee. If the customer decides to return the item, he/she gets a prepaid shipping label and returns the product to Outlaw, who inspects the item to insure it was shipped back in original condition. Upon satisfactory inspection, the customer is given a full refund for the purchase price minus the original outbound freight cost. They don't mention what would happen if the returned items are not in the original condition, but I assume there may be other deductions for repairs. Another online audio company, Hsu Research, also offers a 30 day satisfaction guarantee. The customer has to get an RMA number and then pay to have it shipped back to Hsu. If the complete product is returned in "like new" condition, Hsu provides a refund of the purchase price minus the original shipping charges. If the product is not in "like new" condition, the return item may be refused or a 15% restocking fee might be applied.

Based on this limited survey, it looks like a 30 day return policy makes the most sense. By charging the customer for shipping, we may be able to discourage anyone who might otherwise take advantage of having free use of our products for a period of time, while still giving someone the opportunity to return it if it doesn't meet their needs or expectations. Maybe if the item isn't returned within this period they would be charged a restocking fee. And if the item is damaged, they might be charged for repairs.

Once a product has been opened, it cannot be resold as new, so obviously the price of these items has to be reduced. Dell has 3 categories of products they sell other than new: 'previously ordered new' are items that were never turned on and are in perfect condition (not sure how we'd determine this, except maybe with a sticker over the power socket); 'certified refurbished' are items that are retested and refurbished to original factory specifications; and 'scratch and dent' are items with cosmetic blemishes that do not impact performance. Outlaw doesn't apply any categories to their returned items, so you pay the same for a "B-stock" product with or without blemishes.

I'd like to get some feedback regarding different product return policies. What kind of return policy do you demand before you are willing to purchase from an online store? If you have any suggestions or questions, please leave a comment.


  1. I believe you have come to the correct conclusions. I look to make sure I have around 30 days to return something. I expect to pay the shipping, that is par for the course. It is a big plus and improves my opinion about a company if I don't have to pay return shipping, but it is by no means a requirement for me.

  2. I agree with the 30 day policy as well. It seems like many companies have had to tighten return policies latetly. One example is Costco

  3. Using Dell as an example is like shooting yourself in the foot and afterwards asking yourself: "Now was that a good idea Colin?"