Search

How improved returns services can increase your customer’s loyalty

Image of parcel and returns services

By: Stuart Higgins

With the rise in competition and maturity of the online retail market, shoppers increasingly expect a generous returns policy, and online retailers are faced with margin-threatening costs and complexity.

But you needn’t think of returns as a necessary evil.

This article will explain how you can use returns as a driver of customer loyalty in online retail.

Customer expectations

The rise of the digitally-enabled customer is challenging existing retail paradigms. Where the power once lay in the hands of the retailer, the customer is now the driving force in the relationship. Customers have more buying power than ever; they expect greater choice and lower shipping costs. The internet is turning the globe into every shopper’s high street and competition is now on an international scale. As a result, retailers are increasingly perceiving customer service as a key differentiator to improve customer acquisition and loyalty.

Customer needs and expectations are higher than ever before. The customer service bar is constantly being raised by new experiences from across the retail industry and beyond.

Technologies and services from neighbouring sectors are raising customer expectations in retail. Companies such as Uber, Just Eat, Deliveroo and Airbnb lead customers to expect increasing choice and availability of product across the internet. They expect to get the exact item they want and to compare prices instantaneously. They expect returns to be frictionless: the returns process is rated almost as highly as delivery capability when selecting a preferred retailer.

Gaphics of improved returns services and laptop

Source: creditcards.com

Returns are a necessary part of trading online. Distance selling regulations (which apply to all purchases you make at a distance, for example online or over the phone) require retailers to offer customers the ability to return goods, without cause, within 14 days of purchase. However, many retailers offer much longer returns periods.

With online sales continuing to grow, returns volumes are also growing and some retailers may rue the day they led customers to expect they would have the luxury of returning items for no reason, for up to 30, or even 60, days after purchase. Many offer free returns, with the retailer paying for postage. Even those that do not must accept the cost of accepting and processing the item, and making the refund.

For retailers, returns adds complexity and cost to mobile, online, and in-store trading, threatening profit margins, as retailers struggle to drive turnover and market share. But any retailer that eschews free returns could find itself haemorrhaging customers faster than it can afford to.

A deciding factor

Around 70% of customers now use returns as a major factor in deciding who to shop with, our research shows. Average return rates are around 15% to 20% of outbound order volume and returns will grow in line with overall online sales growth. The problem is, many retailers still see returns as an unfortunate by-product of trading online: a necessary evil to be tolerated in pursuit of growth, not part of an integrated and seamless customer offer. 

We recently estimated that £2.5 billion unwanted presents would be returned to UK retailers following 2017 Christmas period. This is especially challenging for retailers, as around 33% of returns will come back through stores precisely at the same time as they are reaching their own peak activity through Christmas and January Sales.

This is a lot of money and effort to leave unattended without a strategic plan. But with some thinking, and the right processes, organisations can reduce the number, and cost, of returns. To understand how, we need to look at why customer return items.

Reasons for returns

Sometimes, customers simply bought the wrong item. Few retailers see that the link between product data and returns, is a strong one. Online shoppers rely on accurate and detailed product descriptions on the websites and phone apps.

Auditing and improving product descriptions for accuracy and consistency across channels is good for customer experience, but it may also avoid the cost of returns. It’s important to anticipate any questions, and bear in mind the distinction between promoting and overselling. Products that don’t meet shoppers’ expectations can quickly end up back with the retailer.

The highest proportion of returns are typically experienced by apparel and shoe retailers, where garment fit is key to customer acceptance. The customer needs to be able to try on the garment in the comfort of their own home and return it if the fit isn’t quite right.

Image of a delivery for improved returns service

This can typically mean customers ordering 2 or 3 sizes of the same garment and returning all but the best fitting item. Some retailers are experimenting with ‘virtual changing rooms’ where augmented reality tools are used to enable the customer to picture themselves wearing the garment as part of the ordering process, but it is still very early days for his technology and it will be a number of years before it is widely adopted in online retail.

Some returned products are no longer needed. Customers just change their minds or find an alternative before the order arrives. At Christmas and on birthdays, the gift can often be incorrect. The recipient may already have it, or not want it. The same goes if customer no longer wants the item because opinions, situations, and needs have changed.

All these cases can be difficult to avoid, but retailers can ease the impact by offering alternatives or gift card options to encourage loyalty. Making the returns process slick, easy and efficient for the customer will show that their business will always be welcome in the future.

Returns also result from products damaged in transit. Damage can occur with internal logistics or with carriers. The more that retailers can do to use appropriate packaging to prevent damage, the better. Meanwhile, partnering with a reputable carrier can help.

Sometimes a retailer ships the wrong item and shoppers have every right to be frustrated when they do. Companies investing in the processes and information systems to ensure fulfilment accuracy at source can prevent the inadvertent return.

The last cause of returns is “wardrobing”, a term used to describe the unethical practice of customers buying an item to use once, and then returning it. A party dress for a special occasion is a good example. It is virtually impossible for retailers to prevent wardrobing, but some are starting to make inroads by using data and analytics to identify repeat returners and prevent them reordering. 

Understanding the hidden cost of returns

While some strategies can limit the number of returns, understanding the full cost of them can help mitigate their impact on the bottom line. It is not just the cost of receiving and logging returned items retailer should think about. Typically, an online order costs around £2 to £3 more to process than a store purchase. This investment by the retailer to encourage online sales will be lost if the customer returns the goods.

As we’ve discussed, free returns are standard. That’s great if the customer walks the items back into a store, but costly if the retailer must pay a carrier to collect the parcel from the customer’s home or if the customer posts the item back at the retailer’s expense.

Meanwhile, some items, such as electrical goods, need to be tested to make sure they are safe to be re-sold. Other items need to be checked to make sure they are in ‘as new’ condition and can go back onto the shelf. Inevitably there will be some items that are simply not fit for resale and must be either discounted or scrapped altogether – further adding to retailer’s costs.

There are also hidden costs to returns which many retailers fail to recognise. If the retailer accepts returns 14 days after sale, and it takes four weeks to get back on sale, the year may have moved into a new season, so the item will require discounting to ensure it sells, adding to costs. It’s an especially important problem in fashion but could affect other seasonal items such as garden furniture.

Making returns pay as part of customer experience

When we talk to and visit retailers, it is clear the returns process is often an after-thought. In store stockrooms, we often see piles of returns waiting to be processed: no-one knows how long they have been there or when they will be back on sale. Multiply that by hundreds of stores and that is a lot of inventory tying up a lot of cash.

Returns are not the poor cousin of customer experience and online marketing. If they cost too much, they erode margins. If the process is bad, customer loyalty is lost. For retail returns, it is time to go back to basics.

 

By: Stuart Higgins, Director – Retail, at Bearing Point (formerly LCP Consulting)

Join thousands of other Online Retail professionals

Get unique insights straight to your inbox for free, and improve your understanding of online retail. Subscribe to Online Retail Weekly now.

Customer Connect 2019 scroll banner