With the holiday shopping season upon us, online retailers are gearing up for what will almost certainly be another record-breaking year for online sales. However, retailers still face numerous challenges such as returns, which can eat into margins and are a growing problem.
Fortunately, there are a number of techniques online retailers can employ to minimize returns. Here are six of them:
The boom in free returns has been driven in large part by the number of retailers offering free returns. The rationale is simple: free returns reduce purchase friction and can help boost conversion rates. After all, if a customer knows she can return items at no cost, a purchase decision is often going to be easier to make.
The downside, of course, is that many customers will take advantage of free returns. In fact, a UPS study found that three-quarters of online returned at least one purchase this year by mail.
The most most obvious ways to discourage returns is to eliminate free return policies. While not without risk–lack of free returns could potentially dent sales–retailers able to compete strongly on other considerations, such as price and customer experience, might be able to get away with it.
Another way to reduce returns is to offer customers a financial incentive not to return items. Incentives can come in a number of forms.
Online styling startup StitchFix sends its customers boxes containing five clothing items. While StitchFix offers customers free returns for items they don’t want, customers who keep all five items receive a 25% discount on the price of the box.
Retail giant Walmart takes a slightly different approach, giving customers the option to opt out of its free return policy. If they later decide to return an item, they’re charged a return fee of $5.99 plus 5% of the item price.
Not all customers are equally valuable. Retailers acknowledge this in a number of ways, which is starting to extend to return policies. Best Buy, for instance, normally gives customers 15 days to return items. But customers who earn Elite and Elite Plus status, which require $1,500 or $3,500 in annual spend, get 30 and 45 days, respectively, to make returns.
Retailers can experiment with variations of this approach to align return policies to their assessment of a customer’s value.
One way Amazon reduces returns is by letting customers keep items. Yes, that’s right: In some cases, Amazon will issue a refund and let customers keep the items they want to return.
Typically, this is seen with low-cost items that might have a price at which it costs Amazon more to have them shipped back.
Obviously, letting customers keep items they are refunded for creates a fraud risk. But with adequate fraud controls, it could be a sensible solution when the economics of the return don’t make sense or where customers indicate they’re returning an item that is broken or defective.
Content and user experience has a key role to play in minimizing returns. By providing more detailed product information and better content, such as high-resolution photos, videos and interactive visualization tools such as augmented reality (AR), online retailers can help customers make better informed decisions.
This is especially true in certain product categories, such as clothing. For example, many retailers now provide detailed sizing information in an effort to make sure that customers can assess fit before they make a purchase.
While content and better user experience won’t completely eliminate returns, they can be highly effective in preventing avoidable returns.
As a general rule, the primary challenge presented by returns is the cost of shipping, not the return itself. Interestingly, when presented with a choice to return an item by mail or in-store, UPS found that more than half of customers preferred in-store returns.
That suggests that retailers with a brick-and-mortar presence would be wise to implement in-store returns if they haven’t already. It also explains why a number of online retailers are partnering up with brick-and-mortar retailers to allow their customers to make in-store returns.
Even Amazon, which has a growing physical footprint that includes in-store lockers and Whole Foods supermarkets, recently partnered with Kohl’s to accept free returns in Kohl’s stores in Chicago and Los Angeles.
As we head into the busiest shopping time of the year, returns will certainly present a challenge to retailers. But by approaching their return policies strategically, whether that means incentivizing people to keep items or offering better user experiences, marketers can ensure that returns don’t break their brands this holiday season.
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