4 Reasons Why Customer Returns Are Great for Your Business

What’s your attitude to customer returns? Considering the impact returns have on online businesses, you should – generally speaking – celebrate and welcome them. Here’s why.

 

On average, 20 percent of products sold online are sent back again, according to Forrester research, as cited by Shopify.
Your own rates will depend on your industry and a whole lot of other factors, like what your return policy looks like, how effective your marketing and sales messages are (if they are not effective at all, only the most dedicated buyers will buy, thus reducing your return rates), and how easy your payment process is (easy payments lead to more sales in general, including to impulse buyers, some of whom will later re-evaluate their buying decision and cause your return rates to increase).

The bottom line is this: If you believe it’s bad for business getting your products sent back, think again. You need to look beyond your headline return rates to see the full picture, and this article gives just a glimpse of how returns affect your business in positive ways.

1. Returns in high numbers are a given if you attract customers who love shopping (and that’s great)

In the traditional retail environment, keen shoppers might take 7-8 garments to the dressing room, look in the mirror and then decide which items to keep. In the online world, the procedure is pretty similar, but now the dressing room is their home. They order whatever looks interesting, try it on, keep what they like and send the rest back.

Just look at fashion store Revolve. In 2017 the successful company had $400 million in net sales, while reporting $385 million in returns (they make it very easy to return a purchase, sending a return label with each shipment). According to their recent IPO filing their business numbers look pretty good: they had an average of 7.3M unique visitors per month, delivered approximately 75 percent of net sales at full price, retained 88 percent of net sales from the previous year’s customers, had an average order value of $304, and delivered a gross margin of 48.5 percent.

For shoppers who are always on the lookout for their next purchase, returns are just a natural part of the shopping experience. The high return rates they generate are directly linked to high revenues as well.

A sure-fire way to put these customers off would be to tighten up the returns policy. They would go somewhere else. In a study reported by BigCommerce, over half of online shoppers said they avoid stores with a strict returns policy.

2. Returns are, in many cases, a sign that you do a great job

The easier you make the buying process for your consumers, the more completed purchases you’ll end up with. Indecisive buyers are much more likely to go ahead and order if the process is smoooth. It goes without saying that some of those hesitant customers change their minds afterwards. So yes, return rates go up, but so does your net revenue. The numbers are on your side.

Fast fashion retailer Asos lets its customers return purchased products for free, but not only that. Customers can also choose not to pay until they have tried their purchases. The way it works is this: At the point of purchase, an invoice is created. It’s due 14 days later. If a customer wants to return the goods, they simply pause the invoice (via Klarna’s app) and then, once the return is registered by Asos, the invoice is cleared.

According to a UPS study, 66 percent of customers say they check return policies before making a purchase. And, as mentioned earlier, more than half of online shoppers will steer clear of stores with a strict returns policy.

3. Returns are not primarily an expense, they are part of a profit engine

When 56 retailers were surveyed by J. Andrew Petersen, an Associate Professor of Marketing at the University of North Carolina, and his colleague V. Kumar, Director of the PhD program in marketing at Georgia State University, the results were revealing.

Not even half of the retailers surveyed considered product returns to be a fundamental part of their marketing appeal to consumers or a worthwhile allocation of corporate resources. But the two marketing experts have scientific proof to show that businesses should be thinking this way.

For three years they studied the shopping behaviours of 26,000 customers of a large retailer that sells apparel, footwear, and accessories through both an online store and a mail-order catalogue. They wanted to understand how the dynamics between product return behaviour and purchase behaviour play out over time.

The most beneficial strategy, it turns out, is a model focused on customer lifetime value, using metrics to balance the customer’s perceived risk against return-related costs. Profits were 29 percent higher at the end of the three-year period for the customer base to which that strategy was applied.

“This finding suggests that understanding the dynamics between product return behaviour and purchase behaviour over time enables firms to distinguish customers who are likely to increase purchase behaviour at a faster rate relative to product return behaviour rather than focus only on the net profit from purchase behaviour — all at a lower marketing cost,” the authors write in the study, as cited by Strategy Business.

4. Returns can prevent you from getting a bad reputation (as long as you manage them well)

There are two polarities when it comes to returns:

  • The nightmare experience. This is where customers want to return a product – for whatever reason – and get endless questions that make them feel like a criminal suspect for doing so. To fill in the necessary forms is time-consuming and difficult and they need to pay for returns themselves. Then they must wait days or weeks for a refund. The customer service team takes forever to respond, and once they answer the call or e-mail their tone is cold with no signs of empathy.
  • The no-hassle experience. This is where customers get an experience that is equivalent to walking into a store, saying “I want to return this”, and getting the answer “Absolutely, let’s take care of that right away for you”. No guilt involved, no hard feelings, no trouble. At Zalando, returning purchases is as easy as logging into your account, marking off whichever items you want to return, attaching the return label to the package and sending it back. No costs whatsoever for delivery, returns or invoices.

Do your customers experience the first or second scenario?

The first? Hey, stop reading this article immediately and go fix the problem as soon as you possibly can, before social media channels become overrun with complaints.

The second? Fantastic. Whatever the reason your customers have for sending back what they purchased – a misfit, wrong product, broken product or something else – your smoooth process soothes them. As you have probably noticed, most people are very forgiving, as long as you treat them well and make returns easy and hassle-free. And some additional good news: did you know that free shipping on returns alone can improve your long-term revenue? That’s according the one study featured in the Journal of Marketing. The study, reported by BigCommerce, found that consumers who could send back products for free increased their purchases over the next two years by 58 to 357 percent.

What should you do next?

Wouldn’t it be great if every customer was completely happy with every purchase, so that they would never have the need to send anything back? Well, that’s utopia. We get that. However, there are a few things that will help you come closer to that reality.

A few examples:

  • Can you improve your product descriptions so they become clearer and more accurate? Asos recently started testing a feature using AR technology in their app to show how the same outfit looks on people of different sizes. That is one advanced way to manage expectations, but improvements in text, images and video will all help too.
  • Can you include a sizing chart, or improve the one you have?
  • Can you add customer reviews?

Anything that can improve the chance of them getting a product that meets their expectations, so a return becomes unnecessary.

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