Originally Posted by Defcon
I don't think its that simple. This is like saying you don't like insurance because if you don't crash you are in effect paying for other people's repairs (I didn't say health because that tends to be a hot topic
These costs get amortized into product cost and I bet the customer attraction and goodwill generated is more than worth it. And what you mean is free 'return' shipping. The free shipping is directly factored into product price, return is spread out - say 5% of people return something, thats then passed on to the other 95% and ends up being cents on the dollar, which people should be glad to pay for the same convenience if needed. Its a win-win and you have great customer retention as well.
Now I may be totally wrong and if so apologies to Tom etc.
I'm not sure the insurance analogy holds water but I'll just comment on the second paragraph. We looked at the total cost of the returned products for 30/60/90 days. There are several factors involved.
1)Shipping to the customer
2)Shipping from the customer back to us.
3)any minor blemishes on the product.
4)the time involved to unbox, inspect, re-test, rebox the product.
5)the cost of some/all new boxing for each product.
6)the time involved to update the website with product availability.
7)the difference in price between a new product and what we sell the b-stock for in the outlet.
Obviously I'm not going to get into specific net/gross percentages but I'll try to be as informative as possible..
Let's simplify it for this example and use one product that costs $1500.
1)Cost is $90
2)Cost is $95
3)we're lucky, no blemishes.
So it cost us $445 total for this example. Or, we would have $445 more in our bank account if we never got this order..
Not the KEY consideration in all this is exactly what percentage of the NON returned orders would have never ordered if they didn't have the free returns option. There will be an exact XX.X% that will correlate to the losses incurred in the above example. So in terms of lost potential sales(we would have gotten if we kept the policy) there will be a % between 1 and 99 that correlates to the losses outlined above..
If the formula indicates we would need to lose 99% of sales to hit that break even(correlation)...then we drop the promotion because we'll never lose 99% of sales. Conversely, if the break even point is a 1% loss of sales, then we keep it because we will likely lose more than 1%.
Obviously the point is neither 1% or 99% but I'm just trying to explain our rational in an easy to follow generic example..
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