Monday, January 26, 2009

Money Back Guarantee?

One of the most powerful selling tools in the mail order business has always been the money back guarantee. Retail stores -- the best -- have also long employed this policy Don't like what you just bought? Bring it back to the store, show your receipt, and your money will be refunded. My wife does it all the time, and she shops a lot!

Of course for some categories of goods, stores have long since halted this policy except where the original merchandise was defective. I can't imagine any store that would be happy about taking back a bottle of perfume that had been opened and used. But times have changed. Or have they? Can we take a classic idea from the past and mold it into an effective and profitable selling strategy for today? Can we use the money back guarantee to sell perfume on the internet?

Back in the 1890's, Richard Hudnut made this offer: Send me 50 cents and I will send you "12 large [scent] tablets" and, if you are not entirely satisfied, tell me and I will "at once and without question refund your money." Hudnut's business flourished and he may well have been the first American to become very, very wealthy selling cosmetics and perfume.

Hudnut didn't make his money by being a fool so let's think a bit about what he was doing -- and let me speculate a bit on what he was doing based on my own experience in the mail order business.

In the first place, Hudnut was not sending out heavy, expensive, breakable bottles. He was sending out pellets -- tablets -- intended to be dissolved in water, and of course, the water -- and its weight -- were not included.

This makes shipping simple, safe and inexpensive. Based on my own experiences I would guess that not only did the 50 cents cover the full cost of shipping (probably less than five cents!), it also covered the cost of the product and part or all of Hudnut's advertising expense. It also, quite likely, covered the small expense of refund requests Hudnut might have received.

In short, the offer was self liquidating.

Now look what else is going on. Hudnut, no doubt, is enclosing a catalog (1-page flier) with the outgoing orders. He is also capturing their names and addresses for his mailing list which he will use to send out larger catalogs periodically. Customers who are pleased with his perfumed pellets are also pleased that Hudnut trusted them -- that he considered them to be honest citizens who would not enjoy his perfume and then demand a refund. So good will is created and, I would expect, about 20 percent or so of customers who took the 50 cent offer probably went on to buy his more costly products.

This is good business. It is also a great way for Hudnut to sell nationally from his office in New York. This in turn paves the way for retailers -- nationwide -- to want to stock the Hudnut line. (Think Billy Mays's original TV ads for Kaboom, at the time sold only by mail order but now found in major supermarket chains.)

Now what about the handful of people who might make multiple requests for Hudnut's no-risk offer and each time request a refund? I can tell you how I've handled this problem and I suspect Hudnut did the same.

We simply kept a list of "problem customers" and, when any order came in, we checked that customer against the "problem customer" list and, if the customer appeared on that list, we told them, "sorry, we can't extend our guarantee TO YOU." This system can be quite effective and in no way harms your relationship with good customers.

Would this strategy would today?

The key to making this strategy work is setting it up properly. This will usually mean developing special products that meet the requirements of the system -- low (very low!) product cost, low shipping preparation cost, low shipping cost, and a seemingly low selling price but one that will cover your expenses and possibly yield a small profit. If your advertising media is your own website, your advertising cost comes close to zero.

Also, to make the strategy work, you absolutely must deliver a good value for the money requested. The "no risk" product must please customers and draw repeat business. If it does not, even if your "no risk" offer makes a small profit up front, ultimately it will burn out and fail.

Ideas to avoid

Forced return of the "impossible to return" product -- One diabolic strategy that has been used by a handful of mail marketers is the money back guarantee which requires the return of the product on the product which is close to impossible to return. In this scenario, to receive a refund the customer must return the merchandise in good condition -- but the merchandise is packed in such a way that it is almost impossible (deliberately!) to rebox and return it to the vendor. It's a "ha ha, I fooled you" deal for the vendor -- whose laughter dies when word gets around.

"Refund your purchase price" -- less shipping charges. This is an accountant's misguided hedge that deflates the power of the guarantee by suggesting that the seller is less than fully confident that the customer will be satisfied. In fact, there are no savings from this hedge because it deflates sales proportionately to the "non-shipping charge" refund savings.

Fine print that voids a guarantee -- We had a local restaurant that distributed money saving coupons. But every time you tried to use one they found some excuse to dishonor it. Their food was good but they are no longer is business. Is it any wonder?

Are you ready to give it your own trial?

I'm working on a promotion using this concept. I don't know how long it will take me to assemble the details and put it into action and I'm not sure which of my perfumes I'll use for the offer (probably my best). I want to see what will happen if I do it right. I'll report the results in time.

If you give this "money back guarantee" concept a trial before I do, let me know how it works for you.

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