When a service provider is available but there is no demand for the service, this is known as

What makes service industries so distinct from manufacturing ones is their immediacy: the hamburgers have to be hot, the motel rooms exactly where the sleepy travelers want them, and the airline seats empty when the customers want to fly. Balancing the supply and demand sides of a service industry is not easy, and whether a manager does it well or not will, this author writes, make all the difference. In this rundown of the juggling feat service managers perform, the author discusses the two basic strategies—“chase demand” and “level capacity”—available to most service companies. He goes on to discuss several ways service managers can alter demand and influence capacity.

The literature on capacity management focuses on goods and manufacturing, and many writers assume that services are merely goods with a few odd characteristics. Unfortunately, these researchers never fully explore the implications of these strange traits:

A version of this article appeared in the November 1976 issue of Harvard Business Review.

• When a business sells a product or service that doesn’t meet basic rights, known as consumer guarantees, it must offer the consumer a solution.
• Consumers can choose between a refund or replacement when a product has a major problem.
• Businesses must fix minor problems with products or services by at least giving a free repair.
• Consumers have a right to alter the agreement with a service provider when a service has a major problem.
• Businesses must not tell consumers to take the problem to the manufacturer or importer.
• Businesses have a right to have their costs of providing a solution to a consumer repaid by a manufacturer, where the problem is the manufacturer’s fault.

What the ACCC does

• We educate consumers and businesses about their rights and responsibilities under the consumer guarantees.
• We accept reports where people consider a business is doing something they shouldn’t do. We use those reports to inform our education, compliance and enforcement work.
• We can investigate, and may take some form of compliance or enforcement action if a business misleads consumers or other businesses about their rights.

What the ACCC can't do

• We don’t resolve individual disputes about a consumer’s right to a repair, replacement or refund for a faulty product or service, or a business’s right to reimbursement form a manufacturer.
• We don’t provide legal advice about whether a consumer is entitled to a repair, replacement of refund for a faulty product or service, or whether a business is entitled to reimbursement from a manufacturer.

Consumers are entitled to a repair, replacement or refund if a product or service they buy doesn’t meet one of the basic rights, known as consumer guarantees.

What the consumer is entitled to generally depends on:

• what was bought (whether the problem is with a product or a service)
• the seriousness of the problem (whether the problem is major or minor).

In some situations, the consumer gets to choose the solution they prefer.

Businesses can’t take away a consumer's right to a refund or replacement for faulty products or services. It’s illegal for businesses to rely on store policies or terms and conditions which deny these rights. For example, policies which say ‘no refunds’ or ‘no refunds or exchanges on sale items’.

A business has the right to assess the product or service before they provide a solution.

Occasions when consumers aren't entitled to a repair, replacement or refund

Consumers are not entitled to a repair, replacement or refund under the consumer guarantees if:

• they got what they asked for but simply changed their mind, found the product cheaper somewhere else, or decided they didn't like the purchase or had no use for it. However, if a business has a ‘change of mind’ policy, they must follow it.
• the problem with the product was caused by the consumer misusing it
• they knew of or were made aware of the problem with the product before they bought it (but they may be entitled to a repair, replacement or refund for a different problem with the product that wasn’t made clear to them before they bought it)
• asked for a service to be done in a certain way against the advice of the business
• the problem with a service was caused by the actions of someone other than the business.

A major problem means the product:

• is unsafe
• is very different from the description or sample
• has either one serious problem or several smaller problems that would stop someone buying the product if they knew about them beforehand
• can’t be used for its normal purpose, or another purpose the consumer told the seller about before they bought it, and can’t easily be fixed within a reasonable time.

Solutions

When a business sells a product with a major problem, or a product that later develops a major problem, it must give the consumer the choice of a refund or a replacement of the same type of product.

A business must not deduct an amount from a refund to take into account the use a consumer has had of the product. A refund should be the full amount the consumer paid for the product.

Refunds should be provided in the same form as the original payment, unless the business and consumer agree otherwise.

A consumer can also choose to keep the product but be compensated for the drop in value caused by the problem.

In some cases, a consumer can also be entitled to compensation for additional damages and loss. See Claiming compensation for more information.

A consumer purchases accommodation at a hotel in full using their credit card when booking. The hotel cannot provide the accommodation to the consumer because the hotel made an error with the booking and provided the room to someone else, with no other rooms available. The hotel must refund the money to the consumer’s credit card.

The hotel can’t provide a refund to the consumer by way of giving them hotel loyalty points, unless the consumer chooses to accept this instead.

However, if the consumer had purchased the accommodation booking using hotel loyalty points, the hotel can provide loyalty points back to the consumer as their refund, and the consumer can’t demand a cash refund instead.

Who is responsible

Businesses are responsible for resolving problems with products they sell to consumers.

Businesses must not tell consumers to go to the manufacturer for a solution.

However, for some consumer guarantees, consumers can choose to seek a solution from the manufacturer, rather than the business they bought the product from. If they do so, consumers will only be entitled to be compensated for the drop in value caused by the problem and, in some cases, other compensation. A manufacturer may offer to resolve the problem by providing a repair, refund or replacement, but consumers cannot demand this from the manufacturer.

A service has a major problem when it:

• creates an unsafe situation
• has either one serious problem or several smaller problems that would stop someone buying the service if they knew about them beforehand
• can’t be used for its normal purpose, or for a specific purpose that the consumer told the seller about, or doesn’t achieve a specific result that the consumer told the seller about, and can’t easily be fixed within a reasonable time.

Solutions

When a service has a major problem, a consumer can choose to:

• cancel the contract and get a refund. This may not be a full refund, as the consumer needs to pay a reasonable amount for any work done so far and as expected, or
• keep the contract, but pay a lower price that takes the problem into account.

If the consumer has already paid upfront, they have the right to get some money back. How much money will depend on whether some or all of the services provided did not have problems, or whether they were provided at all.

Solutions

When a product or service has a minor problem, the business must fix the problem or repair the product for free.

The business does not have to offer a replacement or refund for a minor problem, although it can choose to do this.

When electronic products, like mobile phones, computers and music players, are repaired, consumers can lose their stored data.

Businesses may also use refurbished products or parts when repairing products.

Businesses have to warn consumers about both of these things by giving them a repair notice.

When the business can’t or won’t fix a minor problem

If the business can’t or won’t repair or fix the problem within a reasonable amount of time, or at all, a consumer is entitled to:

• get it done somewhere else, with the business paying the consumer back for the reasonable cost of the fix or repair
• get a refund or replacement instead
• keep the product or cancel the service contract, and be compensated for the drop in value caused by the problem.

What is a ’reasonable’ amount of time for a business to fix a problem will depend on the nature of the product or service. For example, it may take longer for a repairer to attend a house to fix an installed dishwasher than for a pair of pants to be repaired in-store.

The right to return a product

Consumers have the right to return a product if they think there’s a problem.

The product does not have to be in its original packaging, but a business is entitled to ask consumers to provide some form of proof of purchase, such as a receipt.

Responsibility for returning products

Consumers are responsible for returning products that can be posted or easily returned.

Businesses are responsible for paying for the shipping costs or collecting faulty products that are large, heavy or hard to remove, such as:

• widescreen televisions
• beds
• installed appliances, like stoves or dishwashers
• extension ladders stuck in an extended position.

This must be done within a reasonable time.

Return costs

If the business confirms that the product does have a problem, it must reimburse the consumer for any reasonable return costs they have already paid.

Consumers should keep receipts for postage or transport costs so that they can be repaid by the business.

If the business finds that the product does not have a problem, it can make the consumer pay the collection and inspection costs. To do this, the business must give the consumer a reasonable estimate of these costs before collecting the product.

Some problems with products may be the fault of the manufacturer, rather than the fault of the business who sold the product to consumers. For example, if the problem with the product is:

• caused by a manufacturing defect
• that the product doesn’t meet the extra promises the manufacturer made about its quality, condition, performance or characteristics.

If a business provides a repair, replacement, refund, or other compensation to a consumer for these problems, the manufacturer must reimburse the business for these costs. This includes the costs of parts and labour that may be involved in providing a solution to a consumer.

Manufacturers are entitled to assess the product in this situation. But they must not mislead businesses about their rights to have these costs repaid, or act unfairly against businesses that request repayment of these costs. Manufacturers also can’t use their contracts with businesses to take away businesses’ rights to be reimbursed for these costs.

A business has 3 years to ask the manufacturer for reimbursement, from the earliest of:

• the day they fixed any problems with the consumer’s product
• the day the consumer took any legal action against the supplier for the problem.

If a business has a dispute with a manufacturer about repayment of these costs, it can take legal action. The business may wish to seek legal advice about this.

Other resources

Claiming compensation

Repair notices

Consumer rights and guarantees

Consumer guarantees - a guide for consumers

Consumer guarantees - a guide for businesses and legal practitioners

Consumer guarantees: Repair, replace, refund brochure