Green Fields Grocery, on the advice of the Accounting Department introduced a no-refund policy. Until the change employees had the ability to refund customers when they had complaints about items they had purchased. The employee could refund up to $100 immediately and for refunds over $100 the employee had to obtain approval. Accounting proposed the change in policy because it was calculated that the refund policy was costing the store an average of $50 per year for each of their customers. The store has approximately 10,000 regular customers, the new policy represents a cost saving of approximately $500,000 per year for the store.

 Some marketing staff members have concerns that this change will make it much more difficult for the store staff to deal with customer complaints and service recovery. 

 As the new Director of Marketing, the following information is important:

 

Average sales per customer	$5,000 per year
Average profit margin on sales	10%
Average time a person remains a customer.	6 years
CAC (cost per acquisition of customer)	$17.00

 

CASE QUESTIONS

Answer each question using theory and knowledge.  Saying I agree or disagree is not a complete answer. Stating you do not have enough information is not a complete answer.

1. Do you think that management has made the correct decision by introducing their 'no-refund policy'? Justify your answer and support it with calculations.
2. Would you expect the marketing department to be involved in this type of decision? Why/why not? Be specific in your response. Do not just present your opinion.
3. What are the implications and ramifications in respect to customers regarding this charge?