Early in my career I was the Product Manager for a telecoms business that sold cordless phones. We had a very large customer who bought everything we could make. It was so busy I had to learn to drive a fork-lift truck to speed up the deliveries! And I still have that qualification, though maybe not the same driving skills!
We shipped many tens of thousands of these phones to our customer and they sold out through their retail stores like Spock’s ears at a Startrek convention. But we never got a single one back. Not a single failure, not a single reported customer complaint. I was very suspicious. Could our phone really be that good?
In our gross margin estimates for this product (the sales price minus the product cost) we had put aside a small percentage of our sales price to cover warranty returns. We estimated that we might get 0.5% returns (5 in every thousand) due to manufacturing or shipping failures, and that equated to a percentage of the sales price that we’d have to pay to replace the product.
On the one hand it’s great if the product is perfect and nothing comes back – we would have a very low warranty liability – the lowest I had ever experienced. On the other hand if we were getting failures but for some reason they weren’t getting through it could lead to later troubles, which could have been fixed earlier.
We decided to poke the hornets’ nest and see what came out. Our customer said they were getting a few returns and they were being sent to a warehouse to be analysed. I asked if I could go there to help assess the failures. I drove deep into the countryside and entered the warehouse, and what I saw was beyond shocking. Thousands of our phones, piled up.
To cut to the chase, it transpired that many end customers didn’t know how to switch the phone on and so they returned it to the shop. The retailer didn’t know either and accepted the return, refunded the customer the full retail price and sent the phone to a collection point, whereafter it was sent to the warehouse.
We had no warranty liability because there was nothing wrong with the phone once it was switched on. A simple sticker solved the customer’s problem and we sent some training documentation to each retail shop so they could help the customer. Sales continued to climb.
If something is too good to be true, then it’s not true. If you’re selling tangible products there will be some failures. It’s up to you, and relevant consumer law, how you handle them, but flush them out so you can catch them and put the problems right quickly. Your customer will also appreciate your proactivity.
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