How Online Front End Support Tools Can Improve Customer Satisfaction and Drive Down Return Costs

by David Cope

Reverse Logistics Magazine, July/Aug 2008

It is common place that senior executives pay reverse logistics much less attention than forward logistics operations. Whilst many recognise the cost saving potential in returns management, it is often made up of disjointed short programs which tend to fade away once senior management lose interest, or whilst there is healthy sales growth. However, as market pressures increase, manufacturers and retailers are recognising that managing returns and minimising the associated cost is a prerequisite for corporate survival.

In the UK alone, retail returns costs the industry over £6 billion a year. This figure becomes even more alarming when dealing with consumer electronics, where return rates can range from 3% to 20%. Returns are therefore a major issue due to high return rates, high costs and WEEE responsibilities. These costs are further pronounced when you add logistics costs incurred through home delivery returns, storage and warehousing and administration costs. How is it possible for a company to survive if 1 in 5 products sold come back? Returns not only impact margins, they have significant effects on customer loyalty, market share and ultimately perceived brand value.

These return rates deserve even more focus when you consider that a high percentage of returned products are perfectly functional. Research into the mobile phone industry reveals that over 63% of returned goods are ‘no fault found’ (NFF). This represents considerable costs for the manufacturer, the retailer and essentially the customer.

Whilst it is true that high return rates for consumer electricals can be attributed to design flaws and interoperability issues, a large percentage of customer returns are related to issues with settings, connectivity or simply because the customer could not work the product. A product may be reported as defective by a customer for several reasons:

• Customer struggling with functionality/usability of the product
• Product doesn’t meet expectations (perception issue)
• Difficulty connecting with other devices (e.g. TVs, DVD players)
• Settings problem
• Customer abusing returns process
• Specific product issues
• Ultimately product returns are an inevitable part of product sales, however due to its huge impact on margins, returns are something that retailers and manufacturers cannot ignore. With a rise in online sales, a proliferation of non-specialist electrical retailers penetrating the market and a down turn in assisted sales, product returns are expected to increase significantly over the coming years.

As a result, a growing number of companies have started looking at new ways of reducing returns, in particular reducing the number of non-defective products coming back through the channel all together.

How can knowledge management tools help you improve service?

The UK retail climate is dominated by relaxed returns policies. ‘No quibble’ returns have become common place and in a drive to maintain customer loyalty, retailers have found themselves accepting products which they know may not be faulty.

The key challenge for retailers is how to offer adequate after sales support across a wide range of products, with low skilled, time constrained and often transient staff. In the same vein, with many manufacturers outsourcing support networks to more cost effective channels, they too face the problem of offering adequate customer service (that is in line with what the retailer expects) at an acceptable cost.

In an attempt to reduce costs yet improve customer service, some companies have started looking to knowledge management systems that automate the diagnosis and resolution of customer problems.

Knowledge management systems allow customers to solve product problems in the convenience of their home either on-line or over the phone. They enable technical support teams to resolve complex product issues remotely and provide a platform to transfer knowledge/information quickly and effectively to a range of customers and support staff.

Five key advantages of implementing knowledge based systems to help optimise support services:

1. Reduces the time spent training staff on technical issues, frees up staff time spent on returns and leads to better returns management.
2. Stores and maintains a significant level of information which is easily accessible and transferable.
3. The system can be leveraged across different levels of an organisation including shop front staff, call centres and can also be used by technical engineers to quickly diagnose complex problems.
4. Reduces costs and environmental impact of no fault found returns significantly.
5. User friendly, simple to operate, delivers customer satisfaction and helps to reduce return volumes.
Summary

With a proliferation of liberal returns policies, increased innovation and a move towards more distance selling, return rates are on the increase and this trend is likely to continue. Consumer electricals has one of the highest return rates in the market and its costs are significantly higher than comparable sectors. The return cost on one item typically nullifies the margin of two others sold. Therefore product returns is something senior management cannot ignore.

Whilst the monetary cost of returns can be easily measured, the less visible effects such as impact on market share and brand dilution are equally as damaging on margins. Returns management and after sales service must be an integral part of any company’s sales strategy. Service is the key differentiator in today’s market and the companies that invest in the right knowledge management tools today will reap the benefits in years to come.

David Cope is Founder and Managing Director of MGH Consulting with 21 years experience in After Sales Service and Supply Chain Management including major operational roles in Xerox and ICON with multi-million Euro P&L responsibility. He also has Global Consultancy experience as a Principal in Pricewaterhouse Coopers. David has managed the successful delivery of major change initiatives in some of the largest global service operations.

If you are interested in the issues raised in this article please contact David at David.cope@mghconsulting.co.uk or visit the MGH website at: www.mghconsulting.co.uk.

MGH Consulting is a specialist consultancy focused on after sales care and reverse logistics for high technology and consumer electronics sector.