His answer was in the Consumer Guarantees Act
Since Martin sold his stereo to consumers (and not businesses) his sales were governed by the Consumer Guarantees Act (CGA). That meant, implied into every sales transaction were various guarantees, for example that the stereos would be fit for their purpose and correspond to any description given of them prior to sale.

So when a stereo didn’t work, Martin had a responsibility to remedy the problem. The question was, how? Was a refund always the best solution?

When a refund should be avoided

The problem with refunds is that you risk losing the sale altogether and the customer goes away with a poor impression of your products. A far better solution is to fix the problem or provide the customer with a replacement product. However, your ability to do this is limited by the CGA which says that you can only do this where the defect is capable of being remedied or is not substantial. Where that is not the case, the customer can claim his money back providing he tells you straight away about the problem and doesn’t damage the goods before sending them back to you.

What if the goods are damaged by the customer trying to fix them?

If the customer tries to fix the defect, then that implies that the goods are capable of being remedied. But, until recently there was some confusion as to whether the customer could get the goods fixed himself (and claim the costs back). A recent case has clarified that position, and helps businesses like Martin’s. Essentially, it says that if defective goods are capable of being fixed, the customer must give the supplier the chance to fix them first before either getting the goods fixed himself or, claiming a refund. It is only if the supplier refuses to fix the goods (or doesn’t do so within a reasonable time) that the customer can get them fixed himself and claim the cost back. Sounds like common sense.

Common sense prevails

This case is a common sense solution to an age old problem. Suppliers are in a much better position to get their products fixed at the most economical cost. They have the skills to do so, or know the people who can and also may benefit from advantageous supplier agreements. Consumers on the other hand often are not so equipped and could end up incurring expensive repair costs and more importantly causing more damage to the product than existed in the first place.

How do you know if something can be repaired or not?

One of the problems with the CGA is establishing whether a defect is capable of remedy or is substantial, or whether it is not. The problem for the retailer is that you won’t know until you inspect the product and the defect. That’s why you should always insist on the return of the product before agreeing to provide a refund. Once the product is in your possession you can decide whether the product is capable of remedy or not. If it is, then you can repair it. If it is not, then you can persuade your customer to accept a replacement item. That way you are in control of the process and not the customer. Hopefully you will end up keeping the sale.

On the other hand, for those customers who can’t resist picking up the screwdriver and prodding around, you need to send a firm message that you won’t accommodate that type of action. A sign at the point of sale would be useful to emphasise that customers shouldn’t attempt repairs.

Martin’s stereo was damaged beyond repair

The reason Martin’s stereo couldn’t be fixed was because his customer had tried to bodge a repair and caused irreparable damage in the process. That meant that Martin wasn’t obliged to provide a refund or reimburse the customer for the cost of repair. Since the stereo was being paid for in installments, Martin was fully within his rights to claim the balance of the purchase price even though the consumer didn’t have a workable stereo.

So, if a customer insists on a refund, always ask for the original goods back first before agreeing to provide a refund. If there is evidence that the customer has tampered around with the product don’t give a refund or any other remedy. If it is in one piece, see if you can persuade the customer to accept a replacement instead of a refund. This gives you a second opportunity to make the sale.