Amidst fierce competition in the marketplace, many e-commerce companies employ various differentiation strategies to surpass their competitors and secure consumer preferences. One such strategy is implementing a hassle-free return policy. Unfortunately, frequent consumer returns often pose challenges to achieving positive business outcomes. How can companies effectively manage returns to maintain both service quality and profitability?
Risks in Underestimating the Challenges of Return Policy
According to a study by global data analytics firm Appriss Retail, American consumers returned a staggering $428 billion worth of goods in 2020. With the rapid growth of online shopping following the COVID-19 pandemic, returns have further increased. As more brands implement free return policies to gain an advantage in e-commerce competition, consumers now have the convenience of easily returning items without having to provide a reason for return.
However, it is difficult to say that a generous return policy, which captivates consumers, directly leads to increased sales. While all marketing activities incur some cost, return policies that are directly associated with purchases require particular caution when implementing them.
What negative outcomes can result from a return policy that doesn't consider profitability? First, there are costs associated with reverse logistics, which involve collecting returned items. The process of delivering goods from the seller to the consumer is called "logistics," while the process of retrieving items from the consumer is referred to as "reverse logistics." If a free return policy is implemented, not only are there return costs, but also round-trip shipping expenses incurred without any sales revenue. It's important not to underestimate the significance of these costs. As the number of return cases increases, it can easily lead to significant losses.
Products that are restocked in the warehouse are also inevitably devalued compared to new ones. While all products naturally depreciate over time, returned items, even if they are brand new, become difficult to sell at their full value. Companies are forced to lower prices, and even then, if they don't sell, they incur storage costs to keep the inventory. Eventually, the brand might have to decide to dispose of the returned inventory. The disposal can create a perception of poor sales, and the brand may face criticism for contributing to environmental pollution by discarding perfectly good stock.
Solutions to Reducing the Return Rate
Some companies have opted to eliminate free return policies as the costs associated with return processing can be significant, even understanding that doing so can potentially result in losing the very consumers that were attracted by the free return policy. Since convenient and beneficial return policies can help appease dissatisfied customers, blindly eliminating return policies is not the right choice.
The solution to effective return management that balances service and profitability lies in reducing the return rate. Implementing a comprehensive strategy to minimize returns while retaining a free return policy can lead to cost reduction. So, how can the return rate be lowered?
Accuracy is Key
Providing accurate information for consumers is the most straightforward way to reduce the return rate. When describing products on the sales page, it means effectively conveying the features that consumers are curious about, rather than using flashy language or extravagant designs that distract their attention. For example, it's better to describe a product as a "cooling sleeveless t-shirt with excellent airflow" rather than "high-quality clothing." Additionally, providing images that accurately showcase the product, a size guide that specifies measurements, and genuine customer reviews are all effective methods to reduce the return rate.
Recently, various scientific technologies have been applied to better describe products. Cosmetic companies utilize technology that allows customers to test the product's shades on virtual avatars with similar skin tones. Clothing companies employ augmented reality (AR) technology, enabling customers to virtually try on garments before making a purchase. Such collaborations between e-commerce and scientific technologies help facilitate informed purchasing decisions and reduce returns.
Placing high-return rate products in less prominent areas that are not easily noticeable to consumers is a clever strategy to reduce the return rate. For instance, creating a recommended products section on the website's main screen and featuring products with low return rates or high margins. Furthermore, displaying recommended items at the top based on visitors' past purchase data, preferences, and more can also encourage satisfying purchases.
Improving the Production and Delivery Processes
Do certain products have a higher return rate in your company? If so, it's essential to carefully examine customer feedback related to those items. For example, there may be a common reason for returns, such as "the power button doesn't work properly." It is necessary to investigate the production process and identify the reasons for product defects, considering different production methods. If you are a supplier selling products, sourcing higher-quality products from reputable brands can help reduce the return rate.
Improving order processing and delivery processes is also beneficial in preventing issues like deliveries to incorrect addresses and receiving damaged items. To minimize such potential issues in deliveries, utilize barcodes and barcode scanners for accurate product identification, and consider changing packaging materials to ensure product integrity. These problems can be effectively prevented by improving internal processes.
Effective return rate management is crucial for achieving both service quality and profitability. You can now take the next practical steps to reduce returns with an inventory management solution, BoxHero. BoxHero provides various inventory and order management features that facilitate smooth processes for order processing, delivery, and handling returns, including restocking and reselling.