I have been a loyal Costco customer for at least 5 years. One of the main reasons I shop there is for their excellent, no hassle return policy. For me it started with a vacuum. A few years back, I bought a new vacuum at Costco which broke after I had it for about 8 months. I took it back, no box or instructions, just the vacuum, and they promptly refunded my money without any trouble. I repurchased the same vacuum which broke again 6 months later. Again, I returned it to Costco where I was issued a full refund. I was determined to find a different vacuum this time. As I looked around, a new model from Dyson caught my eye. Although it was very expensive, I decided that I should buy a quality model instead of continually hassling with getting a cheaper one replaced. However, looking at the price tag on the Dyson made me really think about the "20% off" coupon I had from Linens N Things. Initially I thought about going there to save some money, but I also thought "What if it breaks in 6 months?" Would they stand behind it? What about after a year? Since I was making a sizable investment, I decided that Costco's return policy made it worthwhile spending a little more to buy it from them.
A few years later I bought a 37" LCD TV from Costco. It was a brand I had never heard of, Vizio, but because of their return policy I was comfortable buying just about anything Costco sold. I knew they stood behind it and guaranteed my satisfaction. After I got it home I proceeded to enjoy the TV for about a year, at which point it began turning off randomly. I took it back to Costco looking to exchange it for a new one. I couldn't find my receipt and I expected to encounter some difficulty. When I got to the service desk, they promptly looked up my receipt. They asked me if I had the manual or the stand. Sheepishly I said "no" - I had thrown them away. The rep told me that she would need a manager's approval which she promptly secured and began the process of issuing me a refund. I told her that I wasn't looking for a refund, just an exchange. She said that their policy was to issue a store credit and that I could use the credit to purchase a replacement. Not wanting to be dishonest, I informed her that the TV was $500 cheaper now than when I originally purchased it. I wasn't trying to get one over on them, just get a defective set replaced. She suggested that I could use the difference to get a larger TV, or put it towards anything else in their store.
At that point I was thrilled and grateful. I promptly got a cart and went to pick out a new TV. I decided that I would replace my defective TV with the same model and use the $500 difference to get a new TV for my family room. I purchased a 46" Sony LCD TV which was over three times the cost of the Vizio, but I had no hesitation in buying it from Costco. The way I look at it, Costco took great care of me that day, and I returned the favor with customer loyalty and additional purchases. I'm not sure what their margins were or how the math worked out, but hopefully we all did well that day. It probably didn't hurt that I also bought a few hundred dollars of "odds and ends" that day too. In fact, I think it may be physically impossible to go to Costco without spending at least a couple hundred dollars.
You can probably imagine I was disappointed yesterday to see the following article:
http://www.latimes.com/business/la-fi-costco28feb28,0,7973536.story?track=mostviewed-storylevel
Costco is cutting back their return policy on electronics from "unlimited" to 90 days. The first thing that jumped out at me in that article was that their old policy was "costing them tens of millions of dollars." That is a really short-sighted way to look at it. It may directly cost them "tens of millions of dollars" to support the policy, but what about the increased sales and customer loyalty derived from taking care of their customers in such an uncommon way? It may be much harder measure than the cost of taking back a broken year-old TV, but I can assure you that it is not insignificant. In a competitive market place like warehouse clubs, customer loyalty is difficult to earn and easy to lose. To me, this seems like a bad move, particularly since I have been the beneficiary of the policy in the past. Why would I buy a TV from Costco vs. Circuit City or Best Buy now? Maybe I'll try Sam's Club which is smartly and opportunistically touting that they still have a "100% satisfaction guarantee." I'm not a fan of Wal-mart (the owner of Sam's Club) for other reasons, but it is at least worth a look before my next purchase.
http://finance.yahoo.com/q?s=COST
Costco isn't doing poorly. In fact, I'm not even sure that at face value "tens of millions of dollars" is an unreasonable expenditure for a company of that size to make on customer satisfaction. I'm sure I'm not the only one who was a vocal proponent of Costco due to their excellent customer service policies. I think this is a classic case of numbers-driven management winning out over a more holistic approach. I believe that where possible, it is better to spend liberally on treating customers and employees well. The direct costs may be high, but there needs to be a little faith that smart investments in treating people right will ultimately pay off in loyalty, profits, word-of-mouth, and productivity. Sure, there will always be abusers, but they tend to be the exception not the rule. Sometimes I think it is easy to focus on the abusers and shape policies accordingly, but they always prove to be a small part of the equation when looking at the big picture.
The shopping sentiment you alluded to in your article is what I call the consumer POM factor - Peace Of Mind. Costco was a home run king when it came to the POM factor. You felt it, I felt it, probably everyone felt it. And then I would hear people brag about Costco. The word "love" would come out of people's mouths, myself included!
And let me tell you something, when customer's associate your store with the word love, well, how much is that worth?
I also made the same buying choices you did. That is, I too would go out of my way to BUY at Coscto (even for more money) because of the POM factor that was a direct result of their return policy.
I concluded my conversation with Mr. Galanti warning him the myopic number-crunching is a dangerous path which could erode the very foundation of Costco's success - customer satisfaction.
If you like, I can send you a copy of my email that I sent.
Take care,
Pasquale