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It’s true! It’s time to flip the script and start viewing returns as a part of your business and not just a cost. So, which returns make up these 50% and how big of an impact can they have on your business?

The graph below represents a pretty average perspective on returns and the question I get from online retailers is if our services can help them lower returns rates as they often find them too high. So what constitutes a “too high” rate and is it the correct question to ask? This, of course, depends on your industry, which consumer segments you are targeting and the general behaviour you have established with your customers. But…

… regardless of your return rate, it’s all about breaking it down and working with different parts in different ways. Basically, the focus shouldn’t lie entirely in lowering the return rates but rather in managing the different parts of it — in order for returns to represent business value and not just cost. So which parts are we talking about and which proportion of your return rate can you affect? The graph below shows an estimated segmentation of how much of your returns can be transformed into something else (the example represents the fashion segment).

This thereby means that we can transform a large number of your returns into something much more interesting, in a controlled fashion. The respective opportunities are described below.

Exchanges

Part of your returns will cover products that the customer wanted to have but where factors such as size, colour and fit were not as expected. These types of returns need to be processed in two ways with the following priority:

  1. Enable “version exchanges” as a frictionless part of your reverse logistics in order to make sure that you retain these potential purchases as much as possible. This portion usually represents 15-25% of the return rate in fashion.
  2. Enable an exchange to another product as a frictionless part of your returns process. Everything doesn’t have to be fully automated. Rather, you have the opportunity to support your customer with suggestions through semi-automated customer service routines that are built into your returns process. A digitalised returns process relieves customer service so that they are able to offer proactive sales-focused service instead.
Other purhcases

A certain amount of your returns will be made up of products that did not meet the customer’s expectations. Here, it’s all about taking advantage of the fact that the customer has already spent money in your shop. Basically, the purchasing decision has already been made — it just so happened that the product was wrong. How can you make sure, to the best of your ability, that this money is spent with you? A great way of doing this is to make sure that you have a post-purchase digital interaction with your customer— ensuring that up-selling and x-selling become a natural part of your return and exchange process. Here we can see that the proportion of returns that are transformed into new purchases are between 5-15%.

Complaints

Nothing yields high customer satisfaction like turning an unhappy customer into a happy one. Complaints represent an opportunity for you to build a positive relationship between the customer and your brand. As a benchmark, you should always try to turn a complaint into a return — either to the same item or a similar one to a similar price. It is also largely beneficial if you can swiftly accept a complaint with the use of tools such as pictures and comments, thereby not needing to send it back. Combine this with the speedy delivery of the new product and you will be faced with a happy and impressed customer — securing the sale.

Expected returns

Expected returns represent the proportion of your return rate that is made up of customers who buy several different sizes and variations of the same item in order to be sure. There is a lot that can be done here. Largely, this will take the form of proactive measures based on customer feedback in combination with high-quality product images, descriptions and sizing guides, that will allow the customer to feel secure in their decision prior to making the purchase. Additionally, there are ways to teach the customer about new buying patterns, such as “express exchanges” that can largely remove the need for ordering several different sizes. Read more about that here.

Addiction

This represents a small but costly part or returns — especially for larger players. A way to mitigate this is to digitalise as well as communicate to the consumer that they will be rewarded with good service if the process is handled well or else pay for their behaviour. So, the customer is not always right and it is up to you to communicate what type of behaviour is acceptable and what is not — in a good way, of course.

“Try on at home” effect

Here it is! Let’s face it, the fact that the changing room now exists in the homes of customers is a huge driver for e-commerce and needs to be accepted as a recurring cost. It is worth noting that the ease and cost of returns can have varying effects on consumer behaviour. If you are not properly managing every different type of return (i.e. the ones that we have gone through in this post), it is easy to draw the conclusion that this section is responsible for all returns and to say that all returns are, in turn, bad, costly and frustrating. However, by managing all the separate parts and viewing them as sources of competitive advantage and profit margin, then the unavoidable “try at home effect” actually becomes quite manageable. Additionally, this also contributes to how your brand, customer journey and buying experience is perceived. It is important to note that there is a lot of room for improvement when it comes to smartness and cost-effectiveness in this section.

So, what is a good return rate? Well, a good return rate is one that is well-managed — where you are in full control of every individual section and thereby maximising your business value. If handled correctly, about 50% of your returns represent a business opportunity. Yes, the remaining 50% cost money, but also play a huge role when it comes to brand perception and cost-effective customer service.

If you haven’t done so already, it is time for you to determine how much value you can derive from each individual area, and what effects this will have on your business. The most important thing is to:

Stop focusing on how high your return rate is and start looking at what parts of it you can improve — for both your sake and your customers’.

Cheers, Markus