It's a fact of retail: customers make returns. It's an inevitable part of the business; therefore, it's critical to get the shipping and return policy nailed down and done correctly, keeping in mind that two primary criteria must be met: high customer satisfaction and low cost.
The typical retailer's reverse logistics (returns) costs for consumer goods are equivalent to an average 8.1 percent of total revenue, according to Inbound Logistics. Smarter use of data, a clear end-to-end perspective, and prevention programs are helping to lower return rates for some, but others are embracing the entire return procedure to actually improve overall customer satisfaction.
Retailers understand that with "static" items, such as books and small appliances, customers pretty much know what they are getting because they've researched not only the price but also the technical specifications. Usually, there is little surprise or room for variation when a toaster oven is delivered, for example. Other items aren't so straightforward. Clothes and shoes, for instance, can vary based on size, comfort, and color, and those types of products generally have higher return rates. Nearly two thirds of online fashion retailers have a return rate higher than 25 percent.
Many retailers are now realizing that a shipping and return policy should reflect those differences. Some have opted to offer free returns on specific purchases such as clothing to remove barriers to placing the initial order. Others have made all returns free. Regardless of the policy details, shoppers want a quick, easy, and efficient returns process. Retailers that make the process difficult by charging return shipping or restocking fees, for example often see customers take their business elsewhere.
Zappos is an example of a retailer with a customer-focused return policy. Developing long-term customer relationships is the foundation of its business model. Although many retailers view returns negatively, Zappos considers returns as part of the normal sales cycle, and offers a 100 percent "satisfaction guaranteed return policy." Customers have a full year to return a purchase at no charge. The result is a customer base that is encouraged to order several styles or sizes of products and return the items that don't meet expectations.
In the book "Business Ethics: Ethical Decision Making & Cases," the authors note that while expensive, the strategy works in Zappos' favor. Despite driving return rates of 50 percent, compared with the industry average of 35 percent, the customers with the highest return rates are also Zappos' most profitable. Their positive, frictionless experience with Zappos creates loyalty to the retailer. And happy, satisfied customers mean healthy profits.
According to Web Retailer, repeat shoppers comprise roughly 40 percent of all online sales. E-tailers with a 40 percent repeat customer base make 50 percent more revenue than their competitors with a 10 percent repeat customer base. So even if it feels like a disappointment, retailers must remember that returns are a part of the sales process. Many customers are more likely to complete an online purchase if they know the cost of returning it is included. Being prepared is the best way to guard against returns being a losing proposition. Look at your order data and identify the products that have high sales and return rates. Then, factor in the shipping costs to send those products both ways and build it into the price.
Remember, returns are an opportunity to show off excellent customer service. Easy and generous shipping and return policies go a long way toward securing sales in the future.