By Scott Duke Kominers
Bloomberg View
L.L. Bean has eliminated its famous 100-percent satisfaction guarantee under which it promised to repair or replace its products for life, no questions asked. Now, returns must be made within a year (except for defective products), and require proof of purchase.
The outdoors company says that the guarantee had grown too costly. Now it’s going to discover that ending it could cost even more.
Customers are naturally unhappy with the change. Some have turned to the internet and the federal courts to vent their frustration.
And they have a point. For years, customers paid higher prices because L.L. Bean tacked on markups to cover the cost of maintaining its guarantee. Now that value they paid for has been wiped out.
But apparently the guarantee was getting expensive: the cost of returns of destroyed or otherwise unusable items had surpassed the revenue from the company’s signature duck boot.
In a letter on Facebook, L.L. Bean Executive Chairman Shawn Gorman explained that some customers had used the guarantee to replace “heavily worn products used over many years” and sought “refunds for products that have been purchased through third parties, such as at yard sales.”
But if that’s the concern, then L.L. Bean’s move was shortsighted. Gorman conflated two very different types of customers. Let’s call one the lifer, the person who bought products and then renewed them far past their natural lifetimes. The other is the fraudster, a scavenger of L.L. Bean products looking for a quick buck.
Lifers are brand evangelists. They bought L.L. Bean moccasins years ago, perhaps, and speak of them reverently. They also buy L.L. Bean gear for their kids and grandchildren, which more than makes up for the cost of a few replacements every decade.
Fraudsters, by contrast, are a real problem. They’re not using L.L. Bean products themselves, and they’re not buying them for family members. They work at scale, sometimes returning, perhaps, 20 pairs of shoes or more. Those costs add up quickly, and there are no new sales to counterbalance them.
What L.L. Bean really needs is a return policy that separates the lifers from the fraudsters. That’s not particularly hard to do. The company could, for example, introduce product registration, and promise to repair or replace only items returned by their registered owners. Or it could require original receipts with all returns.
Registration would be straightforward to implement, especially since L.L. Bean already has electronic sale records and is even testing blockchain-based product tracking. And it’s unlikely that a casual customer would hold onto receipts just to increase the eventual yard-sale value of a pair of boots or moccasins.
In either case, there would probably need to be a grace period for recording past purchases. But in the long run, the only people returning years-old products would be dedicated L.L. Bean customers. Those happy lifers would keep profit margins high, while fraudsters would get the boot.
Scott Duke Kominers is the MBA Class of 1960 Associate Professor of Business Administration at Harvard Business School, and a faculty affiliate of the Harvard Department of Economics.
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