September 22, 2017
Mike Cassidy
Mike is lead storyteller at Signifyd. A former journalist, he covers e-commerce and the way automation is changing digital commerce. He's a retail geek. And, as a White Sox fan, he's resilient.

E-commerce Returns: Transforming Pain Into Opportunity

By Mike Cassidy

Guillaume Racine seems perfectly sane in every respect.

But you could understand if the typical online retailer would start to have doubts when Racine begins talking about how returned orders present tremendous opportunity for e-commerce businesses.

After all, as we noted earlier, the cost of returns is a major challenge for retailers facing thin margins and counting every sale as a small victory. Consider, for instance, that returns from online clothes purchases alone reach billions of dollars a year and estimates of overall returns range as high as 30 percent of all online orders.

Each return represents not only a lost sale, but often also includes the cost of shipping the product back to the retailer and whatever work has to be done to prepare the returned goods for resale.

Racine, the co-founder of recently launched Return Magic, sees returns in a whole different light. Yes, there are costs involved. And yes, thanks to Amazon’s free return policy, no-cost returns are what consumers expect.

But rather than thinking of returns as a cost, he says, retailers should think of the cost of returns as an investment.

“Returns are an opportunity more than a problem,” says Racine, who before Return Magic worked at Amazon and a UK-based firm that worked to reduce cart abandonment. “There are definitely a few things that retailers can do to really make the most of it. They can really offer an engaging customer experience without having to spend a lot more money, necessarily.”

There is research to back Racine’s thinking. A University of California, Berkeley, study said that 90 percent of customers will shop again where they’ve had a positive return experience. Furthermore, the study says those who have good return experiences spend significantly more on return trips than other customers.

A 2015 study in the Journal of Marketing Research found that when digital customers who return products are targeted as potential long-term customers, they become more likely to buy. The reason: They know they won’t get stuck with products they don’t want. In fact, customers who were creatively marketed to, spent nearly 50 percent more over six months than customers on the receiving end of traditional marketing efforts, a Science Daily summary of the research said.

Return orders don’t have to drag down profits

A survey by Narvar, a post-purchase solutions company, also found opportunities in returns. Like UC-Berkeley, Narvar concluded that 95 percent of customers who have a good return experience say they will shop with that merchant again.

Narvar also found that more than half of consumers replaced the returned item. The trick, of course, is to get them to replace the item with a purchase from you. As it is now, Narvar reported, of the 57 percent who replace a returned item, about 40 percent buy the replacement from the original retailer.

Evan Fript, co-founder and CEO of Paul Evans, an online seller of high-quality, hand-crafted men’s shoes, understood the value of a generous return policy from the beginning. The e-commerce retailer gives customers 365 days to decide on a pair of shoes.

The policy, Fript said in an email interview, reduces the number of returns and builds a higher customer lifetime value.

“The longer a customer has a product in their possession, the more committed they become to keeping it,” Fript said. “So, by offering a 365-day return policy, I am increasing the likelihood a customer keeps the shoes. if merchants require 14- or 30-day returns, then the customer only has so much time to test out the product. With a full year to evaluate my shoes, there’s no rush.”

Paul Evans, which is a Signifyd customer, actually encourages shoppers to order multiple styles, sizes and colors and return the ones that they don’t want to keep. The store sees about a 30 percent return rate, Fript says, which is typical among apparel retailers.

But, he added, because the store doesn’t offer straight exchanges, about half those customers purchase another pair of shoes to replace the returned pair.

“The idea is convenience and the ability to view the shoes with a multitude of outfits,” Fript said.

Return Magic's Guillaume Racine

Return Magic’s Guillaume Racine

Beyond building customer loyalty and value, Racine says returns provide rich merchandising and marketing opportunities. Merchants should pay attention to what items are being returned, he advises. Do patterns emerge around style, size, color or the product itself that’s being returned? Consider using rich return data with machine learning to spot merchandising trends at scale.

For instance, it could be that certain items have fallen out of favor with consumers or don’t appeal to a certain demographic or region. Or maybe gray is the new black and returns show it, given the frequency with which black apparel comes back.

And then there is the marketing potential of returns. Racine says returns are an untapped marketing channel.

When customers return an item online, they go back to the website and go through the checkout process in reverse, he says. So, if someone who bought two shirts is returning one, the merchant knows that shopper is keeping one of the shirts. Why not nudge them to buy more?

“You have that real estate to use that recommendation engine and say, ‘With that shirt you might want this hat.’ You can upsell and cross sell, either directly on the site or by email.”

Racine adds that if you include a recommendation in an email containing information about a customer’s return, you can be pretty sure that customer is going to open the email.

Consumers are calling the shots when it comes to returns

As with so much in retail, consumers are driving the trends in returns.

When it comes to consumers, e-commerce return policies are hardly an afterthought. The Business-2-Community blog says 67 percent of consumers read an e-tailer’s return policy before making a purchase. And 74 percent of those surveyed by Narvar, a post-purchase solution company, said they would not buy from a merchant who charges for returns.

And, of course, there is the Amazon effect. The company known for offering free, two-day shipping through Prime, also provides free returns. The result: 47 percent of consumers surveyed by Narvar said they’d returned an item to Amazon. And 75 percent of Narvar’s respondents said they were satisfied with their Amazon return experience.

So, what’s an online retailer to do? Racine, who helped found Return Magic, has given this some thought. He and co-founder Raff Paquin decided to take a data-centric approach to making returns easier for consumers and more of an opportunity for merchants. The API-based platform provides the kind of data that retailers can use to understand the overall cost of returns, the value of inventory in transit, the top reasons for returns and the products that are most likely to be returned because they were damaged in transit, for instance.

He says that in order to transform returns from a cost to a value, merchants need to:

Be deliberate. Returns are not an afterthought for your customers and they shouldn’t be an afterthought for you. Be bold, Racine says. Advertise your return policy prominently on your website and mobile sites.

“Even if you don’t want to offer free returns,” he says, “you can still advertise ‘Easy Returns.’”

And stand by that “easy” claim.

“If you’re trying to create friction and create additional steps or a really restrictive policy, customers know what they can expect,” Racine says. “And if you’re not easily willing to engage positively with the customer, it’s a very, very fast way to lose customers forever, really.”

Give customers options when it comes to returning items. Sure, they can box the item up and send it back. And, yes, returning in store is a good option. But why not create drop off points, say at neighborhood convenience stores or at Amazon locker-type facilities? Or how about offering a courier service, like Uber Rush, that will come pick up a return at a customer’s door, Racine suggests.  

Be flexible when it comes to the form of refund given for a return. Crediting a credit card is probably the least valuable option for a merchant. The sale is lost. The revenue is gone. Offering only store credit is probably the least satisfying for your customer. They feel backed into a corner. Now they resent you.

Why not offer either a credit card reimbursement or a store credit for future purchase? Racine says in such cases, it’s fine to add a financial incentive for customers to choose the store credit. Offer free returns for store credit, for instance, while charging a few dollars for a cash refund.

Segment, segment, segment. When it comes to returns, not all customers, products or reasons for sending something back are created equal, Racine says

You might offer free returns for damaged goods, but levy a charge for customers returning because of style or color preference. You might offer free returns to a “highly engaged, loyal, frequent customer,” while charging for returns from “someone who’s a first-time buyer, buying at a 50 percent discount.”

And, you might tell a customer to just keep a product that will cost more to return than it is worth, while you would never do that with an expensive product. Think of it as the RORI — return on return investment.

U.S. customers returning goods to a U.S. location is one thing. International customers returning products back to the United States is a whole other thing. Consider providing free return shipping within the United States while asking international customers to pay the return freight, which is undoubtedly higher than a shipment entirely within the United States.

Maybe you have serial returners — customers who very frequently return items. You might want to consider a disincentive, such as charging for shipping, once a customer has returned items from five orders or 10 orders or some other number.

Racine’s advice has two main goals: To make returns easy for consumers (“frictionless” is the word the industry likes) and to protect retailers’ margins.  

By being thoughtful about returns, Racine says, “you protect your profit and you know where to invest.”

In other words, look at returns as you would any other part of your business. If you look at them that way, you’ll soon begin to see them not as a necessary evil, but as a potential profit center.

How do you view returns: As a pain in the neck or as an opportunity to build customer loyalty? Let us know in the comments section below.

Photo of Guillaume Racine courtesy of Guillaume Racine. Photo of UPS truck by Mike Cassidy.

Mike Cassidy is Signifyd’s lead storyteller. Contact him at mike.cassidy@signifyd.com; follow him on Twitter at @mikecassidy.

 

 

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Signifyd’s Reimbursement Policy

What’s Covered

We cover chargebacks connected with fraud or unauthorized charges, often due to:

  • Stolen account information (account takeover)

  • Stolen financial information

What’s Not Covered

We do not cover chargebacks due to errors made by the merchant, card processor, or shipper, like:

  • Item not received, not as described, or defective/broken

  • Refund not processed

  • Duplicate charges

As long as the chargeback meets the above criteria, we'll cover it and reimburse the full chargeback amount, plus any associated fees.

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