The Best Practices For Offering CPG Customers a Money-Back Guarantee: With Case Studies

Some brands that have successfully executed a money-back guarantee offer include Albertsons’ Signature products, Coca-Cola’s Powerade, and Dollar Shave Club’s razor. Research has also shown that offering a money-back guarantee causes customers to shift from the national brand to the store brand. The offer is beneficial as it reduces risk and increases trust from customers, however, it also allows exposure to fraudulent returns.

1. Albertsons’ 4,000 Signature products all come with a 100% money-back guarantee

2. Coca-Cola announced a money-back guarantee to support the launch of Powerade

  • In 2005, Coca-Cola launched a new product called Powerade Option. Powerade Option is a low-carbohydrate, low-calorie sports drink that is designed for active people who seek hydration throughout the day. In support of this new product launch, Coca-Cola offered a money-back guarantee for this product. This marketing proved to be successful as product sales increased.
  • According to Mary Herrera, Coca-Cola North America’s marketing director for sports and energy drinks then, “Consumers told us they wanted a low-calorie sports drink that didn’t sacrifice great taste, and we’ve delivered on that with POWERade OPTION. We have been overwhelmed with the positive feedback this product has received, and sales continue to exceed expectations. Combine this initial feedback with the results from the taste test against Propel, and it was an easy decision to initiate the ‘Great Taste’ money-back guarantee.”

3. Dollar Shave Club has been an online success with its money-back guarantee

  • In 2016, the shaving market exploded with the online breakthrough success of the subscription brand Dollar Shave Club. It has a simple business model and that is for customers to subscribe in a monthly delivery of razor blades in their homes. Subscribers or customers are then given a 100% money-back guarantee if they’re not satisfied with the product.
  • This has become very successful as in 2017, Euromonitor reports have shown that Dollar Shave Club’s razor accounts for 54% of the US online shaving market.

4. Offering a money-back guarantee reduces risk and increases trust

  • As discovered by J. R. Watkins, the first salesman who offered a money-back guarantee, the primary benefit of the offer is it gets people to try the product. This is very beneficial in a digital setting since customers don’t get to see or touch the product before purchasing.
  • According to marketer Dean Rieck, “With a guarantee, they (customers) feel confident that they won’t be stuck with their purchase. And the very act of offering a strong guarantee lets buyers know you really believe the product is worth its asking price.”
  • The offer also increases trust as customers see that the company stands behind the product which then gives the message that the product actually works.
  • According to Kathleen Kusek, consultant and consumer goods writer for Forbes, “The risks are few and the rewards are many, categorically, never more so than it is now. Retailers look at refunds as a way to create trust. It’s a company’s way of saying ‘you’re not being tricked, this is a mutual relationship, and you’ll have the opportunity to change your mind.’”

5. It causes customer to shift from the national brand to store brand

  • According to Zongsheng Huang of Shanghai Maritime University as published in his 2019 research paper, “the MBG policy could be a strategic tool to help the retailer developing its store brand even when a fairer policy is chosen by the retailer and the store brand is considered by consumers as a low-end substitute for the national brand.” This was found after he examined “game-theoretic models with different MBG policies regarding the national brand and the store brand.”
  • Huang added, “Although the national brand has advantages over the store brand, MBG will increase the competition and cause customer shifting from the national brand to store brand.”
  • Huang’s 2019 research paper is entitled “Money-back Guarantee and Pricing Decision with Retailer’s Store Brand.”

6. One disadvantage of offering a money-back guarantee is its exposure to fraudulent returns

  • Giving a money-back guarantee offer exposes one to manipulation and fraud. According to a 2014 report, the cost of fraudulent returns in the US retail industry has been around $10.8 billions.
  • The cost of customer returns in the US reaches $260 billion annually. The return rates also vary depending on the category. For high fashion apparel that are being sold in traditional stores, the return rate reaches 35%.
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