7 steps to build a return strategy to increase your revenues

7 steps to build a return strategy to increase your revenues

Reza Mokdad

Reza Mokdad

June 14, 2019

In recent years, with the development of the digital and constantly connected world, we’ve witnessed a huge change in our consumption habits.

E-commerce now has become a part of everyday life, customers are using their different devices (phones, tablets or computers) to buy products with increasing frequency. According to Statista, it is growing at such a pace that, the revenues generated from e-commerce sales are projected to reach almost 4.88 trillion dollars by 2021 which represents a growth of 365% compared to 2014.

This increase in sales in the e-commerce industry is followed by another phenomenon: the increase in the number of returns and despite all the efforts made to acquire new customers and to retain them, online retailers are still overlooking this part of the process.

According to Invesp, at least 30% of products ordered online are returned while in the last three years, 89% of consumers have returned an online purchase. As reported by Shopify, 42% of them have returned an online purchase during the last 6 months.

1. Main reasons of product returns

There are many reasons behind these incredibly high rates and here are the 8 most important ones according to chargeback:

  • Incorrect product or size ordered
    The main reason for this is that customers don’t have the chance to test the products before making their purchase which makes it hard for them to select the size that fits them best. Which makes it the main reason for returns, especially in the fashion industry.
  • Product no longer needed
    Many customers change their mind in the time between the buying decision and the order delivery. That’s why it is crucial to have an efficient and fast shipping method.
  • The product did not match the description on the website or in catalog
    Most of the times the product pages aren’t clear and accurate. Pictures sometimes don’t give a real view of the product and description aren’t that detailed.
  • The product did not meet customer’s expectations
    This is due, most of the times, to the fact that e-commerce are overselling their products and customers just don’t see the product’s value you’re claiming.
  • The company shipped wrong product or size
    We’re human and we all make mistakes but it is important to coach and teach your employees to reduce these mistakes.
  • Purchased during the holiday season
    Many gifts are offered during the holiday season to relatives and friends and sometimes we just don’t know what they like and we get it wrong (well, I always get it wrong) which increases the returns rates.
  • Wardrobing (when a buyer purchases an item and uses it for a one-time purpose with the intent of returning it after the fact)
  • Deliberate fraud
    Here, we talk about criminal fraud, most of the times, it is due to peolpe paying with stolen credit cards or counterfeit money.

2. Types of product returns

Along with these reasons, we also notice the emergence of some “out of the ordinary” types of return customers:

  • The "wardrober" type: The kind of customer who buys an article to use it once and then return it after. We all have that one friend who buys classy and expensive clothes, to wear them during parties and return them the day after.
  • The fitting roomer:
    The kind of customer who buys the same products but with different sizes and colors, tries them and returns the ones that did not fit or the ones he didn’t like.
    This kind of purchasing behavior is becoming so popular that some brands are trying to differentiate themselves by specifically encouraging customers to do so.
    To illustrate, Warby Parker, an e-commerce company that sells fashionable and affordable eyewear, started as a small e-commerce and is now valued to almost 2 billion dollars. The secret to their success is their Home Try On program where they target fitting roomer customers. The program consists of shipping to the customers 5 frames for free so that they can try them, select their favorite and ship back the rest. With this initiative, the e-commerce company turned one of today’s struggles into one of their differentiation points.

Returning a product means more cost (and sometimes more frustration) for either the customer or the e-commerce, that’s why it is important to understand the role returns play in the purchasing experience. According to Statista, returns delivery will cost 550 billion dollars by 2020 in the US only. This represents 15% of all revenues generated from e-commerce and it reveals to be a clear conversion and profit killer.

So in order to address this problem, (as we’ve mentioned in our last article: How to boost your sales in your e-commerce with growth hacking?) focusing on each stage of the customer journey to drive sales growth is more than crucial for e-commerce and returns now plays a big part of it.

Facing returns while not being prepared for it can be very expensive and since you cannot get rid of returns completely, creating a return strategy is then a priority if you want to sustain your operations as an e-commerce owner. Setting a clear policy to manage your reverse logistics can help you move from a cost to profit perspective. Providing a smooth return experience to your customers does not only help you decrease costs and gain in profit margins but also develop your sales. It is an opportunity to retain customers rather than lose them.

According to a research study conducted by Professor Amanda Bower, customers who receive free shipping on returns increased their purchases over the next two years from 58 to 357%, which comes to prove what Craig Adkins, VP of Services and Operations at Zappos, said: “Our best customers have the highest returns rates, but they are also the ones that spend the most money with us and are our most profitable customers.”

3. Build an efficient returns process

Defining an effective return strategy can also help you gain a competitive advantage, increase efficiency and optimize every step of your logistics chain. Along with that, you’ll also need to ensure that returns decrease, in order to do so, we prepared for you a list of things to check:

  • Identify which products have the highest return rate:
    Analyzing your data related to returns can help you spot which specific products are causing problems to customers; it will help you point out any quality or communication problems related to the specific products that are returned. You’ll then be able to address these problems and so decrease the return rates and provide a better experience to your customers. Imagine that you are selling shoes and you have a very high return ratio on one specific pair, you might discover that those are mislabeled!
  • Add a feedback form:
    Adding a feedback form that your customers can fill gives you the opportunity to collect the right information from the customers. You’ll be able to understand the reasons behind each return and also get a clear idea of your customers expectations.
  • Add customer reviews:
    Encouraging customers to leave reviews in your product pages can be a good way to avoid returns and boost your sales. It increases your credibility and builds trust with your customers. It also provides more information to support your reviews to provide the right information for other customers to make the best purchasing decision.
  • Optimize your product page:
    Make sure to use detailed descriptions and quality images for your products. Also, make sure to include additional information that is specific to each type of product: for example, if it is for clothes, don’t forget to add size guides. You can also add videos on how to set the product with different components if the product needs a specific set up. This will help you set the right expectations for your customers and thus not only decrease your return rates but also increase your conversion rates.
  • Provide real-time customer service:
    Another way to decrease return rates is to offer real-time customer service via chatbox, this allows your customers to interact with you before making their purchase. Helping and providing them with the needed information will help you ease their experience, boost your sales and significantly lower your return rates.
  • Create an FAQ:
    Creating a FAQ where you answer common questions your customers ask is a great way to provide relevant information about your products and your return policy
    This will help your customers to easily navigate through your website and have all the needed information before making their purchase. It will also save time and effort for your customer's support team.

4. Improve your returns process

Now that you’ve got this list of actions to decrease your return rates, it doesn't mean that you won't have anymore returns, some can't be anticipated, your customers might have changed their mind between the moment they make the purchase and the moment they receive the product (even if you provide same day delivery, yes…). So let’s move on to the list of actions you’ll need to take in order to establish a good return policy:

Define the cooling off period:

The cooling off period is the interval of time between the reception of the product and the moment in which the customer has to return it. One of the most important factors to take into consideration before setting your cooling off period is the law.

Each territory has its own laws regarding consumer rights, for example in Europe, 14 days is the minimum amount of time for a cooling off period and customers don’t need any valid reason to return a product. While in the United States, there’s no minimum required and so you can set it the way you want, your return policy will need to state it clearly or else the cooling off period is defined by the laws related to each state.

You can set your strategy however you want though, you can opt for the shortest period possible by law if you go for a cost-effective strategy, or you can set a longer interval if you want to use return as a differentiation point. Nike for instance, offers a "30 days free return dirt and all" policy, you basically can run a marathon with your new nike shoes and return those for free...

The laws related to the cooling off period apply in the country where the company is established, not the customer.

Define the valid reasons for a return:

Depending on the territory your e-commerce is established in, you can chose to define the valid reasons for a return. If your e-commerce is located in Australia, you can for example set which reasons are valid and which ones are not.

When it comes to e-commerce established in Europe, as we’ve mentioned earlier, customers don’t need a valid reason, but what you can do though is to define which reasons are valid for refunds and which ones are valid for exchanges.

This will help you avoid any confusion with your customers.

Define who pays the return:

As you may know, return costs are quite expensive and in order to avoid any confusion during the process, you’ll need to clearly define who pays the return fees.

If you want to go for a cost-effective strategy, you can let the customer pay the return fees. While this decision can a good one in the short term, opting for a differentiation strategy by supporting the return fees is much better in the long run.

According to Invest, 79% of consumers want free return shipping and 62% would buy again from a brand offering free returns/exchanges. So opting for a free return strategy can be expensive on one single order but this will help you drive more sales and offer a better experience to your customers (and improve their lifetime value)

If your e-commerce isn’t able to offer free returns, you can also choose to share the return costs with your customers

Define the conditions of the return:

In order to avoid any confusion, you’ll also need to define the specific conditions needed for the return to be valid. A good way to do it is by asking yourselves the following questions:

Do you need the price label to be still on the product or not?

Do you need the product to be in the same package/box?

Do you need the return label to be in the shipment?

For example, in order to avoid wardrobing, many fashion online retailers ask for the price label to be still on the clothes for the return to be valid. Again, we all know someone capable of doing an entire party with the label hid in the collar :)

Include instructions for returning the products:

One important aspect to include in your return policy is the instructions for your customer on how to return your products. This will help make each step of the process as easy as possible for them. According to Invesp, 92% of consumers will buy something again if returns are easy. So easing their return experience will not only help you gather positive reviews but also boost your sales.

Here’s a simple example of how your instructions could look like:
- Please, make a return inquiry on the website by specifying the product, the number of the order, etc.
- Please, use the same package we sent you.
- Fill out the return label that you found in the package and include it inside your shipment.
- etc.

You can specify which carrier can the customer use to send back the product. You can also specify the sending method for example through pick up or drop off, etc.
Your instructions need to be simple, clear with an easy to understand language.

Explain how the refund works:

Another thing that you’ll need to state in your return policy is how the refund is going to be made. You’ll need to give information about how many days will it take for the customer to receive their refund or their exchange. You need to state at which stage of the process you are going to refund them, is it when the return is accepted ? or will you refund them when the product is finally received in your warehouse?

You’ll also need to define which way you are going to refund your customers. You can choose to refund them on their credit card, offer an exchange or offer a gift card.

This step is important so that your customers have a clear idea regarding the refund or the exchange process.

Set a clear return timeline:

It is crucial that your customers understand and know how much time will all the process time. You’ll need to specify the number of days they have in order to make the return request, the number of days that it will take for them to get refunded or to get their product exchanged.

You can also consider extending this timeline during the holiday period.

Christmas, for instance, is one of the busiest periods of the year when it comes to returns. Since many of the purchases made during that time are gifts for relatives. Extending your returns timeline will help you keep the shoppers who made size errors happy.

Creating a return policy will help you set the right expectations for your customers, improve your customer service and boost your sales. Now that you know how to create a return policy from scratch, we prepared for you a list of tips to optimize it:

Highlight your return policy:

Based on Invesp insights, 67% of shoppers check the returns page before making a purchase, so make sure your return policy is easily and quickly accessible for your customers. You can add it to the header to be accessible from any page on your website. Also make sure to showcase it in your cart, products and checkout pages. This will help you ease your customers’ experience, build trust and use it as a differentiation factor to boost your sales.

Automate your return processes:

Answering your return inquiries manually can take a lot of time, cost and effort, so automation is a great option to improve your customer service. Customers should be able to create their and track their returns easily.

Automating your processes gives you the opportunity to be more time and cost effective. It also provides a better experience for your customers that will lead to a better retention and thus a growth in sales.

Use returns as an opportunity:

Having a clear and customer-friendly return policy can be a great opportunity to showcase your services. Providing a good customer service can turn potential leaving customers into loyal ones who will spend even more money on your products in the future.

Finally now that you know everything about returns, from the main problems to the best tips to do, let us know how implementing a good return policy helped you boost your customer satisfaction and grow your sales.

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