Balancing Customer Services Costs with Maintaining Competitive Advantage

Balancing Customer Services Costs with Maintaining Competitive Advantage
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Retail organizations can only maintain a competitive advantage when they take specific care in developing flexible and friendly return policies. The cost incurred when a valued customer is lost higher than the cost incurred when a customer happens to return fraud items. The cost incurred when a valued customer is lost includes the cost of obtaining a new customer to replace the loyal one. The cost of getting a new customer is staggering because the new customer must be attracted through personal selling, promotions, advertising, creating new accounts, and price sensitivity (Yarrow, 2012). The organization must spend finance on all these factors to attract new customers. Furthermore, the company must carry out activities aim to attract new customers. If the valued customer is retained, the company becomes profitable. The organization gets additional profits due to increased referrals, minimized the tendency of valued customers shopping from competitors, minimized price sensitivity and improved repeat purchases (Dodds, 2003). When loyal customers are retained, money spent on promotion and advertising is reduced; therefore lots of cash flow is generated.
Rigid return policies have caused many business stores lose valued customers due to rigidity, inflexibility and unresponsiveness of such policies. Effective customer service is what attracts and retains customers. Efficient customer services can only be offered by creating flexible and responsive policies that aim to fulfill customers’ needs. Rigid policies have no room to accommodate customers’ complaint. It is not new to realize that loyal customers abandon shopping from particular business stores because their issues cannot be addressed due to directives of rigid policies. A good example is a particular business store denied a valued customer to return two items she bought two week ago. Nadeem (2012) explains that out of the two items, the customer bought other eight items, which were on good condition. The store manager denied the customer to return the two items because the company’s policy did not allow returning of goods sold and the policy had no exceptions to enable customers return faulty items. The customer had nothing to do but was frustrated by the rigidity of the business (Nadeem, 2012). As a result, she vowed never to come back shopping to that retail outlet and cautioned her colleagues never to shop in that business again. Such a scenario illustrates how rigid policies can cost a lot in businesses. A flexible policy states guidelines but gives room for exceptions. For example, if a customer wants to return goods, the flexible policy may allow customers to return the goods, but request the customer to pick others items from the store without getting money paid.
One of the important requirements, when a customer returns goods to a business store, is customers’ driving license. Lonyai (2013) opines that the reason business stores require customer’s driver license is to access The Retail Equation (the technique in which customer’s personal information is placed into the database, which indicates how...