The modern online consumer is connected, informed, and has more options for shopping than they can evaluate. One determining factor that has become more important in consumer’s shopping preferences is whether a brand can offer a comprehensive returns policy. While the growth of e-commerce platforms in recent years provides an opportunity for retailers to capitalise on a wider pool of buyers, profit margins can often be limited by the logistical costs associated with fulfilment, deliveries and returns. Because consumers are unable to interact with products prior to purchase in the same way as in-store, return rates can be much higher with online purchases.
As retail gradually returns to normal, of course, many consumers will flock to old habits and will opt to returns goods in-store, however, there is a growing opportunity to set a transparent, easy returns policy that can build customer satisfaction and loyalty.
Why is it important to enhance the returns process?
Returns have become more prevalent with e-commerce retailers because of their importance to customers. A poor customer experience when handling returns can compromise brand image and erode existing customer loyalty. However, over 90% of customers will reportedly purchase again with a retailer that has an easy, straightforward returns policy.
Return policies can also directly affect Customer Lifetime Value (LTV), as Web Retailer research has discovered that e-commerce businesses with at least 40% repeat customers are likely to have 50% higher sales than retailers with only 10% repeat purchases. Repeat customers provide much greater value and lower acquisition costs per purchase, therefore, policies should be set to best reflect the chances of securing that additional purchase.
Depending on the product category, consumers may also shop with the intent to return a purchase. This particular trend has created more demand for ‘try before you buy’ options such as Amazon Prime Wardrobe, and ‘buy now, pay later’ models prevalent across retailers like Asos. Brands offering a generous return policy have a better opportunity to compete with bigger retailers, especially when combined with other incentives such as fast delivery, easy exchanges, and prompt customer service. As the COVID-19 pandemic has also created greater demand for orders and disrupted supply chain logistics globally, automating returns can help keep your team’s resources focused on other key areas of fulfilment.
The challenges with rethinking returns
While online customers want to have the option of returning goods without hassle, the costs for retailers can affect profit margins. In fact, research from the World Economic Forum estimates the rate of online returns to vary between 25% and 60% depending on the category. The cost associated with handling those returns is between 20% and 65% of the value of the goods.
The functional challenges with online returns will range, however, some common factors that should be considered. For instance, getting items back into stock can be challenging with returns as the time between the product leaving the warehouse for delivery and its return creates a window where it is dead stock. During this period, the item cannot be sold anywhere and is simultaneously also using resources in the logistics process.
Furthermore, because returns are often costly, not directly linked to increased revenue and profit, and at times offered reluctantly, it can be easy to segment the process within your business and not innovate. Logistics teams will often focus on delivering an agreed-upon service with the lowest possible costs, however, as the quality of the returns process becomes more important for the digital consumer retailers need to do more than offer the basics.
Company structure and culture can often also be a roadblock, and brands must be aware of the organisational changes that are required to deliver a working returns solution for customers. Returns will commonly be handled by logistics departments that often target cost minimisation, but are also a key consideration for other teams as they can affect lifetime value, conversion rates and acquisition costs. Because of the complexity and cost to resolve this, many brands are reluctant to reduce the friction created by returns from the customer journey.
Establishing a cost-effective returns strategy
Is it actually possible for brands without a big budget to provide a premium returns proposition without risking profit margins? Online customers are less likely to purchase multiple times from a retailer that has a negative returns experience, therefore, this then leads to the brand spending additional resources acquiring new customers. This can become costly for many brands, as acquiring a new customer can be five times more expensive than retaining an existing one. Because of this, investing in returns may be a short-term expense but will prove valuable long term.
Furthermore, by setting the right objectives, targeting, and outsourcing, brands can streamline the returns process without huge costs or disruption. Utilising existing internal teams such as marketing and sales can further help logistics departments with aligning processes to company objectives, whereas integrating software tools such as smart returns can further enhance efficiency through intelligent product routing for restocking and reduced handling.
A positive customer experience encourages repeat purchases, thereby benefiting all teams. Aligning all teams to a singular brand strategy enables businesses to focus on and address customer experience metrics such as lifetime value and loyalty. In the long term, this helps to find the sweet spot between initial customer acquisition investment and long term loyalty. Return solutions are no longer an optional investment but a necessity for brands seeking to prevent a customer from having a negative brand experience in the first place.
Implementing your returns policy
The exact details of the returns policy that will apply to a specific brand will vary based on product, customer base, and existing business. However, free returns are becoming more commonplace and expected by consumers, with 52% of multi-channel retailers offering free returns on online orders in 2019 and 2020 in the UK. Brands should not overlook the value of setting a well-known and straightforward returns policy, similar to, for example, Adidas’ 60-day free returns, as this can help build a positive reputation with customers and reflects confidence in the product quality. This may be particularly applicable to brands that sell premium goods where consumers are more concerned about the longevity of the item.
Communicating with customers effectively is essential to creating an efficient policy that is consistently maintained across all channels. As customers often experience fragmented journeys with multiple sources, they may receive different pieces of information throughout their journey. The quality and consistency of this information can be very different compared to pre-purchase emails or those from couriers. Brands should aim to centralise communications into a single, branded communication channel to engage with customers for returns, as well as fulfilment updates and re-marketing activities. This channel can be connected to fulfilment couriers, stores and even warehouses to ensure that customers receive consistent information during every stage of their journey. This will provide the added benefit of reducing the amount of customer support required and create a more positive brand experience from start to finish.
Digitising returns data is another process that can help with tracking and analysing essential metrics that can be used to improve existing business strategies. More value can be extracted from information in a digital format as well as reducing the time-consuming processes of manually analysing. Paperless systems enable staff to scan a barcode to log an item and all the return information is automatically processed and included. Aggregating such data can help identify processes that can be potentially improved, for instance, identifying whether clearer product sizing is required.
To compete with the growing number of retailers that have launched their own QR label-free returns, such as Missguided’s contactless solution using InPost, brands can also consider easy digital returns with no printouts that can be taken to a post office to provide greater options for customers.
As businesses continue to adapt to additional post-Brexit duties and taxes, border requirements, and delays, consider how this will impact the ongoing state of returns. Timing discrepancies should be communicated with customers, in addition to orders having the correct paperwork to ensure successful fulfilment. Regardless of your preferred policy, establishing a technology-enabled returns process will enable faster restocking, lower costs, and customer experience improvements as your brand scales.
When setting returns policies, brands must account for potential abuse of the generosity of the policy by implementing monitoring and profiling software that can assist in such instances with restricting the levels of exploitation for the policy. Remember, it’s not just about increasing potential loyalty and improving customer experiences, but also improving the conversion rates for first-time customer.
Adapt to deliver
Customers that are able to partake in a great experience across each stage of the customer journey are more likely to become loyal shoppers and purchase again. Furthermore, new customers that are deciding whether to purchase items can safely do so, knowing that they can get their money back if they’re not happy with the item.
As we learn more about online consumers each year, businesses need to shift away from the approach of viewing returns as a cost and towards understanding that logistics and fulfilment are key to competing for consumers’ attention and loyalty. The brands that can adapt to this process and utilise the available technology to deliver the right service will be able to capture a larger share of loyalty and lifetime value from each customer.