{"40346":{"#nid":"40346","#data":{"type":"news","title":"System Proposed for Reducing False Product Returns","body":[{"value":"\u003Cp\u003ERetailers\u0027 common view that the \u0022consumer is king\u0022 has increasingly led some customers to abuse their power, claiming returned products are flawed when they actually have no defects, says Mark Ferguson, assistant professor of operations management at Georgia Tech College of Management.\u003C\/p\u003E\n\u003Cp\u003EFerguson has conducted research on how to reduce the growing incidence of \u0022false failure\u0022 returns, products with no verifiable cosmetic or functional flaws. They are estimated to cost U.S. manufacturers $100 billion a year.\u003C\/p\u003E\n\u003Cp\u003E\u0022Because of the significant financial impact, manufacturers are interested in reducing false failure returns through improved relations and contracts with retailers,\u0022 Ferguson says. \u0022Right now there\u0027s no incentive for retailers to put in extra effort to reduce the number of false failure returns because the manufacturer provides full credit for every returned product.\u0022\n\u003C\/p\u003E\n\u003Cp\u003EBut manufacturers could motivate retailers to help solve the problem via a target rebate contract, which rewards sellers for keeping false failure returns below a predetermined target level, according to Ferguson and his research collaborators, V. Daniel R. Guide Jr. of Pennsylvania State University and Gilvan C. Souza of the University of Maryland. Their study, \u0022Supply Chain Coordination for False Failure Returns,\u0022 will appear this fall in the journal Manufacturing and Service Operations Management. \n\u003C\/p\u003E\n\u003Cp\u003E\u0022There are a number of actions that retailers can take to reduce false failure returns, such as spending extra time with customers and listening to their needs before recommending a particular product,\u0022 Ferguson says. \u0022As a result, customers have a higher probability of purchasing a product that matches their needs the first time. Retailers can also train their sales force to clearly explain the proper operating procedures of a product to customers before they purchase it. A surprisingly large number of technology products are returned because the customer could not figure out how to operate it correctly.\u0022\n\u003C\/p\u003E\n\u003Cp\u003EReasons for false failure returns include not only customers\u0027 misunderstanding of product operation or installation, but also buyer\u0027s remorse. Some consumers, who are often referred to as \u0022devil\u0022 customers, actively abuse the liberal return policies of many U.S. retailers, buying a product such as a power tool and taking it back after their project is done, Ferguson explains. Many retailers like The Home Depot and Best Buy are getting more aggressive about identifying and discouraging customers with excessive returns.\n\u003C\/p\u003E\n\u003Cp\u003EWhy don\u0027t manufacturers charge the retailers for false failure returns? \u0022There is a lot of competition in most product categories,\u0022 Ferguson explains. \u0022The manufacturers are afraid to penalize retailers who might instead push their competitors\u0027 products where there is no danger of being penalized. Some retailers may even refuse to sell the manufacturer\u0027s products completely.\u0022\n\u003C\/p\u003E\n\u003Cp\u003EAlthough false failure returns can often be resold, manufacturers incur significant costs and time delays for the process of testing, refurbishing (if necessary), and repackaging the products. \u0022For companies such as Hewlett-Packard (HP), this process can take up to three months, a significant percentage of the total lifecycle of a technology product,\u0022 Ferguson says. \u0022If a new model has been released before the product returns to the market or the customers demand a discount for buying a refurbished product, manufacturers lose revenue.\u0022\n\u003C\/p\u003E\n\u003Cp\u003EThe researchers examined HP, where product returns were treated as a low-level problem until a thorough analysis showed that their total cost was equivalent to 6 percent of total sales. For HP\u0027s inkjet printer group, false failure returns can account for up to 80 percent of their inkjet printer returns. \n\u003C\/p\u003E\n\u003Cp\u003EHP has experimented with a formula devised by the researchers to calculate where to set the limit for target rebates, which retailers receive for every false failure below the predetermined level. The formula takes into account historical data on false-failure returns. \u0022Our research results indicate the profit improvements from using target rebate contracts are substantial. Best of all, they increase profits for both the manufacturers and the retailers,\u0022 Ferguson says. \u0022Even the customers are better off because the retailers spend more effort ensuring they purchase the right product and understand how to use it before taking it home. Thus, everyone wins.\u0022\n\u003C\/p\u003E\n\u003Cp\u003E\u003Cstrong\u003EWriter:\u003C\/strong\u003E Brad Dixon, College of Management\u003C\/p\u003E\n\u003Cp\u003E\u003C\/p\u003E","summary":null,"format":"limited_html"}],"field_subtitle":[{"value":"Researchers propose system for reducing returns of products inaccurately deemed defective"}],"field_summary":[{"value":"Retailers\u0027 policy that the \u0022consumer is king\u0022 has increasingly led some customers to abuse their power, claiming returned products are flawed when they actually have no defects, says Georgia Tech College of Management  assistant professor Mark Ferguson.","format":"limited_html"}],"field_summary_sentence":[{"value":"Encourage retailers to reduce false failure returns"}],"uid":"27301","created_gmt":"2006-09-14 00:00:00","changed_gmt":"2016-10-08 03:01:42","author":"Elizabeth Campell","boilerplate_text":"","field_publication":"","field_article_url":"","dateline":{"date":"2006-09-14T00:00:00-04:00","iso_date":"2006-09-14T00:00:00-04:00","tz":"America\/New_York"},"extras":[],"hg_media":{"40347":{"id":"40347","type":"image","title":"Mark Ferguson","body":null,"created":"1449174185","gmt_created":"2015-12-03 20:23:05","changed":"1475894322","gmt_changed":"2016-10-08 02:38:42","alt":"Mark Ferguson","file":{"fid":"189802","name":"tjo66595.jpg","image_path":"\/sites\/default\/files\/images\/tjo66595_1.jpg","image_full_path":"http:\/\/hg.gatech.edu\/\/sites\/default\/files\/images\/tjo66595_1.jpg","mime":"image\/jpeg","size":65078,"path_740":"http:\/\/hg.gatech.edu\/sites\/default\/files\/styles\/740xx_scale\/public\/images\/tjo66595_1.jpg?itok=TKn5IGET"}}},"media_ids":["40347"],"related_links":[{"url":"http:\/\/mgt.gatech.edu\/directory\/ferguson.html","title":"Ferguson Faculty Page"}],"groups":[{"id":"1183","name":"Home"}],"categories":[{"id":"139","name":"Business"},{"id":"135","name":"Research"}],"keywords":[{"id":"2703","name":"defective product"},{"id":"2706","name":"false failure"},{"id":"2702","name":"false returns"},{"id":"2709","name":"manufacturer"},{"id":"681","name":"product"},{"id":"2705","name":"product defect"},{"id":"2701","name":"product returns"},{"id":"2707","name":"rebate"},{"id":"456","name":"retail"},{"id":"2704","name":"retailer"},{"id":"167074","name":"Supply Chain"},{"id":"2708","name":"target rebate"}],"core_research_areas":[],"news_room_topics":[],"event_categories":[],"invited_audience":[],"affiliations":[],"classification":[],"areas_of_expertise":[],"news_and_recent_appearances":[],"phone":[],"contact":[{"value":"\u003Cstrong\u003ELisa Grovenstein\u003C\/strong\u003E\u003Cbr \/\u003ECommunications \u0026amp; Marketing\u003Cbr \/\u003E\u003Ca href=\u0022http:\/\/www.gatech.edu\/contact\/index.html?id=lgrovenste3\u0022\u003EContact Lisa Grovenstein\u003C\/a\u003E\u003Cbr \/\u003E\u003Cstrong\u003E404-894-8835\u003C\/strong\u003E","format":"limited_html"}],"email":["lisa.grovenstein@comm.gatech.edu"],"slides":[],"orientation":[],"userdata":""}}}