Why Companies allow customers to choose return option

Discussion in 'Growing and Managing a Business' started by badreligion9265, Oct 8, 2013.

  1. badreligion9265

    badreligion9265
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    As the title states I'd like to know why this is. For example if a product costs a company $5 and that company sells the product for $6 then $1 profit is made. Or at the least we can assume companies generally sell products for profit and are not losing money on a sale. With the above example if a customer purchases the mentioned product for $6 and then for whatever reason claims the product was stolen upon delivery, as is the case with many online fulfilled orders, the company can either A)Give the customer their money back, or B)send the customer a replacement product.

    My question is why do companies like Amazon even bother offering to refund the money without the product, wouldn't they lose more money by accepting the loss of the item in addition to returning the customer's money? I figure it would make the most sense to only offer to send 1 replacement requiring a signature and from that point on requiring no additional return assistance aside from exchanges of items of equal or lesser value. If my point isn't clear I've provided some simple math examples to get it across:

    Product Cost to Company=$5

    Product Price to Consumers=$6

    Initial sale of product: $6-$5=$1(profit)

    $1-$6=$-5(Company gives back money without receiving product in return)

    $1-$5=$-4(Company sends replacement product and keeps money from first purchase)


    As you can see it doesn't make sense why companies offer to return money without receiving the product back, knowing items are sold for profit the above would be true regardless of the company as long as the company is selling their product for more than it costs them to provide the product for the customer. I don't see why companies let customers chose to receive money back without returning a product when companies could simply send a replacement product for less of a loss and be done with the return.
     
  2. ndirect

    ndirect
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    Usually companies will charge the delivery company if the item goes missing so they won't miss out on a profit,

    Secondly companies like Amazon sell products in bulk so the cost of manufacturing is cheaper so they can afford to take a hit on profits with a few customers returning products

    And thirdly it's just good customer service, would you shop again with a company who refuses you a refund for something that's not your fault? Of course not! For companies like Amazon its worth refunding an item of $6 if you are going to spend $60 next time.
     
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  3. Fergal

    Fergal
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    Some people will take advantage of generous refund policies, such as those offered by Amazon. However, the majority of people are honest and will only ask for a refund when they haven't received what they paid for. By offering a generous refund policy, companies help build their reputation and avoid negative publicity from who don't receive what they paid for, for whatever reason. They may lose money on the sale refunded, but overall they make a profit, because the majority of their sales are profitable and do not require a refund.
     
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  4. badreligion9265

    badreligion9265
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    Thanks guys I appreciate your answers, they've provided deeper insight that I hadn't thought of.
     
  5. ndirect

    ndirect
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    Definitely agree, most companies actually budget for these people who take advantage, it's better for them to accommodate those who abuse their policies rather than confront them. It allows them to keep their reputation intact.So for people who think they are getting one over a company like Amazon with a customer compensation gift should probably think again!
     
  6. Mens

    Mens
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    Usually peoples purchase their garments without any fitting sometime after purchasing peoples might change their views about purchase.
     
  7. Changed Creation

    Changed Creation
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    I like to submit that the main reason is to lower the risk for the customer. When you offer this and other kinds of guarantee you take on a bit of the clients's risk and that makes the client lower their caution. It increases trust and also goes a long way to illustrate that you have confidence in the quality of your product and the satisfaction they will experience buying your product. Its also a big effort to return something and on the whole people are too lazy to return stuff, so if your product is good then you have more to gain by giving this!
     

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