On The 13th Day of Christmas in Ag Sales

Are After Market Discounts, Returns & Free Goods killing your profits?

     Last week, I mentioned a pair of unsightly polyester plaid golfing pants and a pair of bright white shoes I received one year from my uncle Paul.  He didn’t exactly have the best taste in clothes nor did he know me very well as I don’t golf much.  Luckily for me, they were too small and he bought them at a large retail chain store nearby.  He didn’t have the receipt but said he “recently” bought them.  Two things to note.  First, they looked like they fit him more than me.  I should have guessed that they were used.  Second, always ask the meaning of “recently” when dealing with Uncle Paul.

     You can guess what happened the next day.  I stood in the return line on Dec 26^th like so many others and watched as the day after Christmas unfolded in painful arguments.  One by one, customers angrily expressed the reason they were returning the items.  Too many excuses to even note here, but the sight of my returned items I’m sure is still being discussed by the clerks.  The pants and shoes were nowhere to be found in their scanner system.  Most likely because they were made prior to bar codes being invented. As a peace offering, they gave me three dollars for the pants and recommended the drop box in the parking lot for the shoes.

     As I left the store and the long lines of people returning opened, broken, and unwanted items, I couldn’t help think about how much revenue was lost that day.  Sometimes the fault of the manufacturer, sometimes the retailer but very often the fault of the consumer.  The brunt of those returns falls on the manufacturer.  In most cases, the retailer simply sends a report of the returns and receives a credit on their account.  This is much cheaper than sending merchandise back and forth.  Everything is great as long as it isn’t abused.  However, the opportunity for that to happen is very high.  The cost of these aftermarket returns can be extremely high for a wholesaler/manufacturer that is operating on high volume-lower margins.

     In Ag Sales, the decision to handle the situation gets a little cloudier.  Feed, seed, agronomy, grain contracts, equipment are long term sales relationships.  So, everyone typically wants to do the right thing.  We want to make it right and take care of the customer.  Often, this happens in the busiest of times at planting or harvest.  With the large amount of transactions, the true cost of “making things right” with the customer are lost in the shuffle. 

     Here are some ways that aftermarket discounts are draining profits

1. Free goods – samples are great, but free 50# bags or a free first ton, etc. can add up quickly
2. Freight discount – this happens in many different ways and is often difficult to net out back to a customer or product margin.
3. Not calculating in the cost of pallets or special handling requests like pick pallets
4. Extending a promotion on products or contract delivery date on grain due to the customer’s request. The reasons for missing these deadlines can be many.  Might even be legitimate but they do cost something.
5. Not meeting all the requirements for a promotion but giving them the promotion anyway.
6. Returns outside of your guidelines. For example, treated seed, which you’ve made it known is not returnable.  Another frequent example is a product that sat in their store for 6 months and didn’t sell.  It’s returnable if it’s still in condition but not after 6 months. Or, they ordered the wrong product and forgot to bring it back.  Now it’s 6 months old and molding. 
7. Unearned cash discounts.

     Every situation and customer is unique and has to be viewed from the total picture.  Was it their first time?  Was it an honest mistake?  How much will it truly cost you?  Is there some goodwill to be established or fences to be mended by allowing this return?  Are they repeat offenders and you’ve told them numerous times that this would be the last time?  Will they truly appreciate what you are going to do for them?  Are you doing it for other customers and have to be equitable in the market?

     The answers get rolled up into a gut feel and decision to either take care of the customer and give them what they are requesting or offer something else as a solution.  Keep in mind that just because the discounts disappear into the P&L and may not be attributed back directly to the product or customer, they do add up quickly.

     In case you are wondering about the golf shoes.   I wore them to my wife’s company Christmas party and I think they were a big hit.  I got a lot of compliments. As for next year, Uncle Paul is getting one of my old Zebco 33 reels with knotted fishing line on it.  Can’t wait to hear his story of returning that to the local super-mart.

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