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.

Wednesday, January 7, 2009

The wrong way to think about launching a perfume business

No successful marketer of perfume has ever started at the top.

I regularly receive emails and phone calls from people who have some money and want to launch a perfume AND get instant distribution with major retailers. So the question I ask them is, "Do you have a following? Will your name and fame bring customers to the retailer, customers who will buy enough of your new perfume from the retailer to make him want to stock it?"

That's the rub. The retailer would be happy to offer your perfume, even if he has never heard of it or of you, IF he can be assured profitable sales.

Can you make that guarantee to a large retailer?

Aside from lack of name and fame, one problem that faces the aspiring-to-national-distribution newbie perfume marketer is lack of money. When people tell me that they have $20,000 or $200,000 to invest in their new perfume, I have to explain (and I don't think they believe me!) that these sums of money can be more than enough to launch a new perfume (business) ONLY if you are planning to introduce your perfume into a limited, targeted market where your name and fame already have some credibility.

Selling to your followers, fan club, extended circle of friends and acquaintances, social network, etc. is very different than trying to sell to strangers.

I sometimes want to cry when I'm approached by someone who really does have enough money to start a profitable business marketing their own perfume but, instead of targeting obvious and profitable markets, they are blinded by dreams of instant riches and can't be bothered with "small (profitable!) potatoes" because it will only distract them from their higher calling.

If you want to succeed in selling your own perfume you have to target a market, build a relationship with that market, and tailor your product to the tastes of that market.

Then you have to keep strengthening your relationship with that market and encouraging that market to expand, either in the amount of money individuals are spending with you or in the number of people who are drawn in to your social group -- or both.

None of this is to suggest that you should not aspire to vast sales and great personal fortune. What I would warn is that those who have achieved vast sales in the perfume business ALL started form a small -- sometimes very small -- customer base.

But it was from their success in selling to this small base and the lessons they learned by working on a small scale that allowed them to expand over time and develop grand international enterprises.

If you can name me one exception to this rule I would be happy to check it out. But, in the entire history of perfume, I doubt that you would find a single exception.