In 2017, Americans gave retailers their best holiday season in over five years. According to a sales report issued by Mastercard SpendingPulse, US year-end holiday retail sales rose 4.9% compared to the same period last year, while online retail shopping similarly increased 18.1%. It was a big win for retail, showing an improved economy and a rise in consumer confidence.
The year 2018 gave no indication of those sales slowing down. Consumer confidence remained at an all-time high, unemployment was low, and take-home wages were on the rise. Retailers were taking all of that into consideration as they prepared for a boost in holiday sales. According to projections given in late 2017 by the National Retail Federation, holiday sales were expected to grow at a minimum of 4.5% over 2017.
But while product is moving quickly off the shelves, a huge percentage of it is making its way back. According to figures from Optoro, a company who specializes in the business of return shipments, consumers returned about $90 billion worth of goods last holiday season alone.
Returns are nothing new to retail. And every business has evolved policies and procedures that work uniquely for each of them. Today’s online shopper returns their product on average about 25-30% of the time. That’s nearly triple the return rate for a brick and mortar store. Of course, this should come as no surprise as an online purchaser usually takes a leap of faith. You’re hopeful “the shoe fits,” without actually trying it on.
And the post-holiday timeframe was no different. As purchases soared as high as Santa’s sleigh in December, returns began to climb just as high. But fear not. There are ways to help quantify these returns and protect yourself from massive losses in the future. Here are some of the key objectives to consider for your return policies that we hope will help you avoid a holiday hangover next year.
Step one: Understand the “true” cost of returns.
A great return and refurbishment process starts with calculating all costs involved. If you underestimate your true costs, you may think that you can sustain a higher level of returns and still achieve your financial goals. If you overestimate your costs, you might be presenting a less friendly level of customer service, which could result in lower sales. Be sure to consider all of the key cost elements in a return: customer service, shipping/receiving, processing returned goods, refurbishment, recycling product, disposal of returned items, and storage costs.
Step two: Have a well-organized mechanism for feedback and goals for on-going process improvement.
The basis of a returns program must incorporate an understanding of why returns occur. Buyer’s remorse is always a contributing factor. Often, products do not meet the customer’s expectations.
Think about the expectations you set with the customer. This includes product promises, item availability, order processing time, and shipping and delivery time. Your business can refine the product promise message to more accurately shape the customer’s expectation. A good order management system allows the customer service agent and consumer using the shopping cart to know whether or not the product is in stock. A fulfillment center capable of processing orders quickly reduces time from order to delivery. Geographic location can reduce time in transit, and lower shipping costs. Consider positioning your fulfillment so that the majority of customers will be reached within 2 days.
You also might consider employing customer service agents who are trained with save-the-sale techniques. Agents who are intimately familiar with the products and promotions can better connect with the customer. Empower agents with a detailed and generous “save-the-sale” strategy. The dynamics of this will vary by product and promotion, but every program should be devised with the objective of minimizing returns. First, a knowledgeable customer service agent may be able to walk the customer through usage problems with their product. The issue could very well be that the customer does not know how to properly use the product and wishes to simply send it back. Only a properly trained agent will be able to correct this. Another effective save-the-sale technique is extending the return window for the customer. In many cases this alleviates the customer’s concern about timing. Having extra time may lead to the customer changing their mind and retaining the product. Depending on the circumstances, it may be possible to persuade the customer to keep the product in exchange for a discount, or a coupon towards a future purchase, which may be less expensive than processing a return. In any case, think creatively. You always have lots of options when it comes to save-the-sale techniques.
Step three: Create and maintain satisfied and loyal customers.
The level of customer satisfaction and loyalty are key elements in a returns strategy and start with your strategic intent. Several options exist when it comes to handling customer return requests:
Just keep it – For low cost/low value items, it’s often cheaper to allow the customer to retain the item, avoiding physical returns.
The customer pays to return - This is the most prevalent methodology; however, consider adding a spin to it. Often, it’s less expensive for the marketer, especially via a fulfillment partner, to transport a returned package. As such, offer your customers a prepaid shipping label for a fee, which is a win-win for all parties. The customer will pay less and also avoid many of the hassles associated with shipping a return.
Free returns for the customer – This one is obviously the most favorable for the customer but can be difficult for most retailers to entertain. If this method is chosen in order to score points with the customer, be sure to initiate the return via a return label program at optimal pricing versus reimbursing the customer at retail shipping rates. This is what we always call a ‘Gold in them Hills’ option because everyone is happy, and the marketer can introduce it only after the save-the-sale attempts have failed.
There’s more. By controlling the return method, marketers proactively can notify the customer of the return status, dramatically reducing customer service calls. Techniques include emails confirming the package is in the mail stream and on its way; when it arrives at the warehouse; when processed; and when the credit or refund is issued.
All of these actions contribute to customer satisfaction. And they reduce customer service costs. At the end of the day, you want to build customers who are loyal to your brand and can communicate the positive experience you provide – thus creating trust with new customers.
Ayal Latz is President of a2b Fulfillment, a third-party logistics service whose solutions are designed to improve the customer experience while reducing operating costs through a variable model. Visit www.a2bf.com for more information.
This article originally appeared in the January/February issue of PARCEL.