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Returns in online retail: How to use it as a differentiator in your offering

By: Georges Berzgal

 

Customer returns pose a big problem for companies selling online.

As ecommerce becomes almost universal, with 94% of shoppers choosing to buy online, ecommerce companies are under pressure to embrace customer returns and make them a true differentiator for their business.

The shift from physical to digital shopping removes the ‘tangibility’ of buying, so to compensate for this, shoppers often order – and return - more when buying online.

This is particularly relevant with clothing, as they effectively bring the fitting room to their living room.

Over-ordering and returning is an expected pattern of buying behaviour, and a challenge ecommerce companies must address when mapping the customer experience from device or desktop to doorstep – and back again, if necessary.

This article will explain how to differentiate your offering using the returns proposition.

Returns on online retail

As many as 63% of shoppers buying women’s clothing online send something back, compared with less than 9% returning items they’ve bought in-store. Figures cited for one German retailer reveal that just 5% of shoppers are responsible for sending back 80% of purchases.

Research has found that without the cost of these returns the retailer’s profits would be as much as 50% higher. Fashion retailer ASOS say that 70% of items ordered online in Germany are returned, and 25% in the UK. There is also a minority of shoppers who exploit businesses’ goodwill in their returns policies.

Some shoppers, for example, indulge in ‘hedge spending’, in which they buy items and hang onto them, returning them later once they’re discounted, to then purchase them again, but at the new lower price.  Online fashion retailers must allow for these changing behaviours, increasing their prices or absorbing the cost themselves.

Return rates for products other than clothing are equally as challenging for sellers: the electronics industry, for example, spends $14 billion a year on product returns.  These items are generally of high value, adding an element of risk to the returns process which must be secure as well as efficient.

image of shirts in shop

Online retailers must also face the challenge that comes with shoppers’ growing preference for shopping overseas: 70% of us now shop online cross-border, which adds further complexity to managing the returns process, navigating local taxes, duties, market regulations and border controls.

The impact of returns

Online retailers are caught between a rock and a hard place: they must make sure their returns meet their customer’ expectations and, match their competitors’ strategies; but absorbing the cost of these returns can have a major impact on their profits. Barclaycard research identified that one in five online businesses increased their prices as a necessity to cover the cost of customer returns, both managing and processing, and 31% say that managing the reverse supply chain has had an impact on their profit margin. 

Online retailers must ensure they have the infrastructure in place to ensure speed of credit for their customers, as this will ultimately impact the customer experience. They are also faced with the need to get products back into their inventory quickly. If this process is not efficient, it results in retailers’ own inventory that is not saleable for longer increments of time.

Time is money, and retailers want good products back into stock as soon as possible – particularly relevant in the fast-moving fashion industry, or with seasonal items which could quickly date, for example. A higher volume of returns could also result in online retailers facing the decision to accommodate fewer stores, instead investing in outsourced reverse logistics experts.

A simple, clear returns process can secure a competitive edge

For some ecommerce companies, however, a robust returns process sets them apart in a highly competitive landscape. Trailblazing fashion retailer Zalando left industry commentators perplexed when it brought in a 100-day free returns policy.

Image of returns arrow

In fact, its returns process has become a differentiator for the business which now has over 18 million customers. Offering free returns demonstrates a commitment to making life easy for your customers, and a confidence in your products.

As well as being great marketing, it builds your buyer/seller relationship and drives customer acquisition too. There are several essential tactics when it comes to managing your returns so you can convert them into opportunities to differentiate your business:

  1. Minimise the likelihood of returns in the first place: include accurate, detailed product descriptions, photos and video if you can.  Localise content, such as size charts, and encourage and reward customer reviews. 
  2. Optimise your data: some packages are returned undelivered, due to inadequate data, incomplete addresses or inaccurate addressing structure. Make it a priority to cleanse and enrich your data, and standardise addresses. Software packages are available to help you with this.
  3. Use propensity modelling: continuing with the data theme, look at your customer data in more detail. You can highlight trends and forecast behaviour, identifying the products they’re more likely to buy – and less likely to return. You can then send them highly personalised marketing
  4. Offer a choice: give customers the choice of returning a package directly to you, returning to a store or dropping off at a collection point
  5. Improve visibility: there’s no excuse not to keep your customers informed, with so many physical and digital channels available. High-performance package tracking solutions give you visibility of inbound and outbound parcels – benefits your customers will appreciate
  6. Set very clear expectations: how long do your customers have to return items? What will you replace? What about broken items, or items lost in transit? Will you offer credit, a voucher or a full refund?
  7. Have a clear internal process in place for returned goods: how will you manage them? Will you dispose of them, fix and refurbish, resell or liquidate them? If cross-border, can you manage that process in country of purchase so as to minimize returns costs back to your domestic market? 

With research proving 92% of consumers committing to buying again if returns are easy, and 67% checking the returns policy before making a purchase, getting your returns strategy wrong could be an expensive mistake – but getting it right could help your business create the competitive edge you’ve been searching for.  

By Georges Berzgal, Vice President EMEA, Commerce Services, Pitney Bowes

 

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