Systemic and swift changes needed to solve $16.7 billion product returns problem in CE

David Douthit

USA: The United States consumer electronics industry is battling a behemoth, escalating and unsustainable problem: product returns.

The problem is not new. It has existed as long as there has been a consumer electronics industry. But in recent years customers’ expectations have risen, products are increasingly more complex, and efforts to stop the wave of resulting returns have not kept pace. For companies to achieve high performance, this severe problem needs to be comprehensively addressed. Transformative systemic changes are needed now.

Accenture arrived at this conclusion based on new research revealing that customers returning electronics products will cost US consumer electronics retailers and manufacturers nearly $17 billion this year, an increase of 21 percent since 2007. These costs include receiving, assessing, repairing, reboxing, restocking and reselling returned products.

The report, “A Returning Problem: Reducing the Quantity and Cost of Product Returns in Consumer Electronics,” captures key findings and insights based on the survey.

The research is based in part on a survey of executives from communications carriers, consumer electronics retailers and consumer electronics manufacturers. Our survey revealed that product return rates over the past three to five years have increased for more than half of retailers (57 percent) and nearly half (43 percent) of manufacturers surveyed. Only 13 percent of the retailers and 12 percent of the manufacturers surveyed indicated that return rates are trending downward.

However, the Accenture research also revealed a significant opportunity for the industry to cut costs and reduce the level of product returns, given that only 5 percent of returns are related to actual product defects. While 27 percent reflect “buyer’s remorse,” 68 percent of returned products are characterized as “No Trouble Found.” This means that, despite the customer perceiving a fault, no failure was detected when retailers and manufacturers tested against their specifications.

When a customer returns a device to the retailer because the device did not meet their functional or usability expectations, it’s a double tragedy: the customer turns unhappy with the experience and the retailer and manufacturer lose money. But why hasn’t the problem been addressed? For three primary reasons: First, returns are often thought of as a cost of doing business. Second, companies focus on efficiently handling returns rather than preventing them. And third, companies often adopt a one-size-fits-all approach towards returns.

What should be done?
Measure the impact of returns. Like manufacturers, retailers need metrics to assess the problem and track trends. It is critical to begin with a baseline to benchmark the current impact of returns. Using that infor­mation, they can determine cost-appropriate levels of improvement and introduce new approaches. For retailers, the most important metrics are: return rates by item; item class and manufacturer; length of time since purchase; and reason for the return.

Without this information, it is nearly impossible to determine what new approaches might reduce return rates. No trouble found products are particularly important because, theoretically, these are 100 percent avoidable. The reason for any return ultimately deemed NTF should be studied carefully.

Educate the customer. Customer education before and after the purchase is vital. Educating on the front-end of the purchase helps the customer better understand whether the product they’re buying will do what they want. With more “bells and whistles” comes an increased need for product education. For instance, some car manufacturers and dealers provide DVDs to instruct buyers on how to use the Global Positioning Satellite and other functions offered on high-end cars, and offer post-sales sales classes on the weekends They also should go over various features with the new owner before they leave the lot – even loading the owner’s cell phone information into the car if it has a Bluetooth capability.

Offer delivery and set-up services to consumers for highly technical products. Accenture research reveals that offering value-added services can radically reduce returns often by as much as 20 percent, while generating additional revenue. (The Best Buy Geek Squad may be the best known example). In fact, given the benefits of reduced returns and improved brand image, a strong case can be made to offer value-added services without generating additional revenue. Doing the right thing is likely to add to the bottom line by reducing the cost of handling returns and contribute to customer satisfaction that may boost sales.

Invest in proactive customer service on high-cost/high-return products. Assisting customers before they have a chance to become frustrated and return an item is paramount. By demonstrating interest in the customer’s success, retailers head off potential implementation and usage problems. They also strengthen their brands’ images. One wireless device manu­facturer worked closely with a wireless carrier to establish a proactive customer contact program for complex data devices sold at the carrier’s retail store. By reaching out to customers in the first 24 hours after the purchase, the collaboration cut buyer’s remorse returns by up to 20 percent.

Provide multiple service options. Customers value choice. They have different ideas about what is convenient, how they want to solve problems, and what services they will pay for. Moreover, people have widely differing preferences varying by age and gender. Some, for example, prefer self-help via the Web; others prefer telephone support or exchange or repair by mail. Other groups may prefer face-to-face interaction and speed of in-person support at a retail store.

A retailer or communi­cation carrier that provides a choice of service and support options enhances the customer’s experience and can reduce return rates. More than two-thirds of all returns are ultimately labeled no trouble found, so in-person service centers can be particularly valuable remedies. They weed out no trouble found products before they become returns.

The author is a senior executive with Accenture’s Supply Chain Management group.