when amazing customer service is bad for customers (and probably investors)

a bonobos case study

This essay is simple.

Bonobos’ customer service policy straight up invites ridic moral hazard, and it’s probably made possible by Bonobos cost cutting in ways that end up hurting customers (or not cost cutting and hurting investors).

Sure, this claim is a little tenuous and there are some logical jumps. But I don’t have time to make this precise, and readers don’t have time to read a length requisite for precision.

No one likes a tl;dr article, so I put the big ideas as headers in case the Medium reader is in a Medium rush.

Bonobos has great customer service

Bonobos “ninjas” or customer service reps help guys figure out their style issues. They are are super cool: Some of them live in New York’s hip East Village.

As a customer, this is great. For instance, as a time crunched grad student with a gay-powered gym addiction, I realized two days before a series of final round interviews that my shoulder reps had pushed my dress shirt size up at least two sizes: I couldn’t fit into the “interview shirts” I bought before the school year started. But this awesome Bonobos ninja allowed me to ship a dress shirt to him in New York (I was coming down from Cambridge), and to pick it up from him at Bonobos’ garment district shop after most department stores had closed. Seriously — who does this?

To top it off, Bonobos has a ridic return policy:

return their clothes within 90 days and you get a refund; return their clothes within 365 days and you get store credit. Bonobos ships its clothing without tags. Wear out the sweater you plan to return with bravado.

And as it turns out this return policy is super useful. When, after some soul searching I realized I was internally much darker and conflicted than Bonobos’ bright blue travel jeans could ever allow, I returned over $1,000 worth of Bonobos’ merch. It was 90 days after purchase (can you do effective soul searching in under 90 days? If so tweet me with deets) but whatever — I now had $1,000 to spend as I liked at Bonobos. Since then, I’ve tried (unsuccessfully) to find pieces that fit with my new vibe (and evolving chest size).

So although Bonobos’ customer service is super great, it also means that customers can cycle through Bonobos inventory, exchanging old for new, now-too-small for just right, and cashmere for tweed as they please.

a sale for Bonobos isn’t exactly a sale

A sale for Bonobos isn’t really a sale. Instead, we might think of it as a loan that Bonobos may have to pay back and more depending on the strategic behavior of the customer.

If the customer is one who only makes an exchange for a different size, but ultimately keeps his clothes, then this “loan” was an ostensibly profitable one for Bonobos.

But the strategic customer is incredibly costly for Bonobos: Any sale to the strategic customer is an extraordinarily bad deal for Bonobos. Bonobos ostensibly agrees to be on the hook for paying for any of the customer’s exchange-driven whims. Bored of your new sweater? Don’t worry, Bonobos will pay to ship the sweater back and ship you three new shirts. Realize those shirts aren’t your style? Try some premium selvage resin denim.

Bonobos profitability then critically rests on the assumption that not too many of its customers will behave strategically.

so how does Bonobos make this happen?

We know that Bonobos’ customer service efforts are not cheap. It gives customers fast free shipping both ways, and hires cool dudes (in a gender neutral sense of course) to help cool dudes buy (cool) clothes. And its return policy invites strategic customers (business school translate: jerks; economics department translate: rational actors) to totally rip Bonobos off.

The only obvious place for Bonobos to save money is in saving money on the production of its clothes. [Or it won’t save money and screw its early investors.]

It may be that Bonobos and its customers just accept this. Bonobos could understand itself a customer service brand, not one of quality and style.

But at least it’s worth recognizing the inequity in the cost shifting going on here. Strategic internal-struggling physical-size-shifting gay dudes like me make cheap the stylish clothes that nice optimistic Stanford GSB bros want to safely buy.

So as some of us non business school broskis (again, gender neutral) learned in liberal arts college, moral hazard can really bite.

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