Your guide to ecommerce returns: policy, process and profits

The problems with returns

Understanding the ecommerce returns market

eCommerce is where most retailers find most of their growth.

eCommerce is a powerful sales channel for retailers and is the engine room driving most of the growth in the retail market. While this growth opportunity is vital for retailers to maximise, their margins are limited by the logistical costs associated with ecommerce fulfilment and deliveries. However, because customers can’t interact with the products before they buy, return rates are approximately three times higher for online purchases than in-store, according to the Reverse Logistics Association.

Returns are a must-have in the minds of ecommerce shoppers, and bad returns experiences hurt customer loyalty and CLTV

Returns are not only more prevalent in ecommerce, they’re also more important for customers. Over 90% of customers reported that they’d purchase again from a retailer who made returning products straightforward and two thirds said that they explicitly check the returns policy before buying something online. Customers who have a bad experience trying to return something are three times more likely to never return to that retailer.

eCommerce returns cost a lot of money for retailers.

Online customers want to have the option to send items back, but these returns cost retailers a lot of money and bites into their margins. In 2015, IHL Group estimated the total global value of returned goods to be over $600 billion annually, a value which is highly likely to have increased in line with ecommerce growth in the last 4 years. Data from the World Economic Forum put the rate of online returns at between 25% and 60% depending on the category. The cost of dealing with those returns is between 20% and 65% of the value of the goods, depending again on the products.

Some back-of-the-napkin maths suggests a very conservative estimate of the annual global cost of returns for retailers would be over $200 billion. The real figure is likely to be much higher and that’s before considering the cost of the out-of-stock time while items are in the logistics system, not in a warehouse ready to be picked or on a shop floor to be purchased. Clearly, returns cost retailers a huge amount of money and reduce their margins.

Returns aren’t seen as an investment in the same way that acquisition is.

In response to the growing burden of ecommerce returns, market leaders in retail have developed new strategies and propositions to deal with them. These leaders, including giants like Amazon, have recognised that the tide of consumer behaviour will not be reversed. Returns are here to stay, and retailers must develop solutions to allow customers to return unwanted items.

A core part of every successful returns solution is the recognition that returns are not simply a drag on the bottom line. Customers who want to send back a purchase are having a negative brand experience. By helping them deal with their return as effectively and cheaply as possible, retailers turn around the experience and rescue customers who would otherwise potentially be lost for good.

So while ecommerce returns are seen purely as a cost by the majority of retailers, market leaders understand that they are part of the customer experience and invest in the returns process in the same way that they invest in the acquisition funnel, for the same reasons.

Functional challenges with ecommerce returns

Getting items back into stock

The time between an item leaving the warehouse for delivery to it returning to store shelves or warehouse racks is time it is effectively dead stock. During this period it is not being sold and not available to be sold, but it is taking up space in the logistics operation. Reducing this wasted time should be an important metric for retailers but very few are able to consistently report on this.

Giving ecommerce customers options for returns

For customers to have a great experience with their ecommerce return, they’ll need to feel like the retailer is offering them several options for them to choose one which is most convenient. This can be challenging for retailers if they cannot effectively utilise their store footprints to accept returns, or if they do not have access to a PUDO (pick-up/drop-off) network.

Communicating with customers

Customers experience fragmented journeys with multiple sources of communication and confusion. They may receive notifications from carriers when a parcel has been collected from a drop-off point, as well as communication from the retailer informing them of their parcel’s journey and their refund status.

Often, the quality of these communications is very different compared to the delivery communications and pre-purchase emails – once again, the emphasis is squarely on the pre-sale experience for many retailers.

Retailers should aim to have a single branded communications channel with their customers, not just for returns but also encompassing delivery and re-marketing activities. This channel should bring in information from carriers, stores and warehouses to give customers clear and consistent information. Doing so reduces customer support usage and provides a more memorable and useful brand experience, whether the customer is returning an item or waiting for one.

Keeping costs down

For ecommerce retailers operating at scale, processing millions of returns annually, finding efficiencies to trim costs is an essential practice. Current systems rely on paper returns slips included in parcels, which adds a significant cost in total over the course of a year’s worth of ecommerce orders.

A move to paperless returns may sound like a small change in terms of cost saving but considering that many retailers currently ship a returns label with every parcel, this change alone can be a major cost saving.

This example illustrates that the real driver of cost reduction and efficiency is process change, which is enabled by technology.

Harnessing returns data

The paperless returns system example is also a useful illustrator of another major functional challenge for retailers. They’re largely unable to analyse returns data and give essential learnings back to the business. Back to our paper returns process: when peak returns hit and the distribution centre’s returns area is swamped with parcels, employees are not going to have time to manually record every scribbled return reason.

Turning this valuable information into a format that the business can use is time consuming, and (especially during peak) this is time logistics employees simply don’t have. With a paperless returns system, the employee simply scans a barcode with a PDA to log the item, and the return reason is automatically processed and included in the data.

Retailers can then analyse this data set in the aggregate to understand where they can potentially take action to reduce returns, for example through clearer sizing, better product imagery or by altering the design of a product.

Organisational roadblocks to returns success

Changing the business view of returns

Returns are costly, painful, not directly linked to increasing ecommerce revenue and profits, and often offered reluctantly, following market leaders who have gotten customers hooked on their free returns propositions.

They’re dealt with in a department that typically has no customer experience targets. Logistics teams have one primary goal at all times – delivering to an agreed level of service with as little cost as possible.

In this context, it’s understandable that returns are not perceived to be an exciting part of the business. Given the cost and pain that they cause retailers, it’s also understandable that they’re not an area that most retailers are excited about innovating and doing more in.

Yet this needs to change. As illustrated above, customers care very much about returns and the quality of the offering will have a statistically massive impact on their propensity to come back and spend again. Retailers need to do more than keep up, because there is a significant opportunity for them to stand out from the competition and win their customers if they can drive innovation and customer-centricity in the returns journey.

Working between departments

So why do more retailers not invest in making returns easier for customers? Organisational structure and culture is often a roadblock. Retailers need to know how to organisationally change to deliver a working returns solution for customers and the business alike. Returns typically falls under the logistics umbrella, a department which is targeted on cost minimisation and efficiency; while also being a key consideration for the ecommerce team, which is focused on lifetime value, conversion rates and acquisition cost. Understandably ecommerce retailers can be reluctant to remove friction from the returns customer journey because to do so will allow more returns, increasing cost.

Unfortunately, online customers who have been left frustrated by their returns experience are less likely to repeatedly purchase. This means the retailer has to spend more money and resource on acquiring new customers, which is much more costly than retaining existing customers. As such, investing in returns may be expensive in the short term, but valuable in the long term.

With the right objectives, targeting and collaboration, returns can be made into a positive part of the customer lifecycle without huge upheaval. eCommerce and marketing teams would love to be able to increase returning customers and improve the lifetime value of those customers. As the stats show, customers who have positive returns experiences are more likely to repeatedly purchase. Therefore, it’s in the interests of these teams to be involved in the logistics which allows those outcomes to happen.

Equally, in the logistics arm, better returns experiences can go both ways, being more useful and effective for the retailer as well as for the customer. A smarter returns platform which can intelligently route those products back onto shelves without having every parcel go to one major distribution centre and then back to stores or warehouses is clearly in their interests. Aligning these teams around customer experience metrics such as loyalty and lifetime value as well as measuring cost sensibly allows retailers to find a better middle ground between upfront customer acquisition investment and long-term customer loyalty.

The vision: returns should be good for retailers

We’ve touched on the idea that returns should be a net positive for retailers. In this section, we’ll go through the customer journey to understand exactly why this is the case, as well as having a quick tour of the statistics that show that offering customer-centric ecommerce returns is a profitable and necessary approach.

Offering customers free and convenient returns enables retailers to:

Differentiate from the competition through marketing and advertising
Improve onsite conversion
Reduce basket abandonment
Increase average order value
Improve customer experience
Reduce customer support team tickets
Increase loyalty and propensity to shop again
Gather feedback about product quality and issues

Returns as a differentiator and acquisition tool

As shoppers, we are creatures of habit. Having had a satisfactory experience with a retailer, a majority of us will tend towards the known quantity the next time we shop, rather than risk a bad experience.

There are many things retailers can do to overcome this inertia when trying to snag customers from the competition, but they can also maximise their advantage when inertia is in their favour.

By offering customer-centric ecommerce returns, retailers can ensure that more and more customers will default to them in future rather than risk a painful or inconvenient experience elsewhere – this is the reason why many retailers invest in returns in the first place. However, it’s not just after a customer has purchased that the returns experience matters. By exploiting an advantage in returns through marketing and advertising, retailers can draw customers away from rivals with lesser returns offerings.

That means that at the very start of an ecommerce purchase journey when a customer is looking at the options available and the retailers they could purchase from, retailers with a quality returns process who emphasise this advantage this in their marketing can acquire additional customers.

For example, ASOS has become synonymous with free and easy returns, leading the fast fashion market in offering customers no questions asked returns, with a returns form in every parcel. This positioning earned ASOS extra market share as shoppers were drawn by the assurance that they could simply return anything they didn’t want to keep at no cost to themselves.

Klarna research shows that 84% of shoppers are more likely to buy from a brand offering free returns. However, today offering free returns is increasingly the norm, and so the barrier for differentiation has been raised and set at offering truly convenient returns options, allowing customers to drop off ecommerce returns in stores, at pick-up/drop-off locations and at the post box or post office.

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On-site conversion rate optimisation

Before the customer is even on-site, a strong returns proposition can draw them to you. But on-site benefits exist too, as customers who are aware that they can return products freely and easily will be more likely to feel secure in making a purchase, improving conversion and reducing basket abandonment and checkout friction.

As Royal Mail note, “if a customer knows they have the reliable fall-back of posting back an unsuitable item at no cost to themselves then they are more likely to return to the shop and place the order in the first place”.

Improved customer experience

Of course, feeling confident enough to purchase an item thanks to a generous and simple returns policy is a great start, but for some ecommerce customers the experience of the purchase won’t be so positive once the item arrives. Receiving a purchase and being disappointed by it is never a great customer experience, but the way retailers support customers from this low point is essential to the overall customer experience and the way that customers remember and rate their experience.

If retailers anticipate and cater for the demand to return purchases, the customer experience can be massively improved. That means making returns information easy to access – for example, in-app or via SMS. In the view of some retailers, making returns easier for customers will simply mean more products coming back and higher costs. However, the value of being helpful to your customers should far outweigh the cost of return shipping and an investment in the experience of returns.

Reduced customer support volume

When customers find it easy and intuitive to return items, they’re less likely to seek help from customer support teams, lowering the burden on these teams. This is especially true when customers receive consistent and up-to-date branded communications about their return, so that they don’t need to worry about their refund or whether their parcel was processed.

Coming back for more

Klarna research in 2017 showed that there was a positive correlation between likelihood to return purchases and lifetime value. Customer who returned more also purchased more, and especially at the top end their increased loyalty and purchase volume significantly outweighed their increased returns.

This shows that for a vital segment of frequent, high-value shoppers, ecommerce returns are a must-have. However, the truth is that returns are vital for loyalty across customer segments. This comes back to the customer experience, as 83% of people would not shop with a retailer again if they have a bad experience when returning items, but 86% will return to a retailer offering customer-centric and free returns.

Treating the cause, not the symptom

Using digital returns tech, ecommerce retailers can more accurately and consistently capture information about each returned product. This allows retailers to focus on the issues leading to returns, for example a defect in the manufacturing process, misleading images on the website or inaccurate sizing.

Returns offer a wealth of potential feedback to retailers about their processes and products, but many are not able to capture this information in an actionable, useful way. This can be due to reliance on manual or paper-based systems, or simply due to a lack of connection between departments, where reverse logistics is not in contact with the product or marketing teams.

Customer expectations and experience

To have a clear and successful model for returns, retailers need to anticipate the needs of their customers. In this section we will set out the state of play for consumer perspectives, the culture of returns, how sustainability concerns will increasingly drive behavioural change and the psychology of the returns experience.

Returns culture

Returns are entirely normal and pervasive in online retail. 82% of customers see returns as a normal part of online shopping. The perception for many retailers is that most customers habitually use ecommerce returns as something like a wardrobing service, or worse, a free clothes-lending service.

Certainly there are shoppers who are exploiting the returns policies of retailers to wear or use a purchase once or twice before sending it back – however, this is likely to be a much smaller minority than those who are purchasing multiple variations of a product and returning those they don’t want. Barclaycard estimates that 40% of shoppers have tried this tactic, although their research doesn’t state how many do so regularly.

Certainly, free returns has become a ubiquitous expectation for retailers in fashion especially, although increasingly the expectations are transferring to retailers in other sectors like home and garden. For example, direct-to-consumer mattress company Casper has led the market with a 100-night, no questions asked return policy.

The direct-to-consumer movement has other innovators and leaders in this cultural shift towards accepting that returns will come – although by some metrics, returns will decrease in proportion to revenue with more generous returns policies.

Appriss tested the impact of strict and ‘friendly’ returns policies in different stores. The results showed that while the implementation of strict policies was followed by a year on year decline in returns rate, it was also accompanied by a reduction in revenue of 11.2%. The ‘friendly’ policy also lead to a near identical reduction in returns, but the revenue reduction was only 2% - even in the context of wider revenue declines, offering generous returns actually made economic and financial sense.

Psychology

There’s a major psychological aspect to customers’ interactions with returns. Understanding how emotional reasoning can play into returns is crucial for retailers to make sure they aren’t ending up as a target of customer frustration and ire.

The peak-end rule, and what it means for returns

The peak-end rule describes how people remember and judge an experience, which is totally applicable to returning purchased products. It describes how the primary memory and judgement is based on the peak (the moment of greatest intensity) and the end of an experience – the way we feel about an experience is mainly based on these two moments rather than an average of the whole time.

This is why it’s so important to focus on the ecommerce customer journey all the way through the cycle, to prevent the lasting memory being of a poor returns experience. With that in mind, let’s compare a couple of shopper journeys, one positive and successful for both the shopper and the retailer versus another which damages the retail brand and frustrates the customer.

In the first example, let’s call her customer 1. She spots a pair of shoes in a Facebook ad and is immediately drawn to them. Clicking through, she completes her purchase. A day or two later, she’s got a notification to say that a parcel is ready for her to collect, so she drops by the shop on her commute to collect it. The excitement of collecting her new pair of shoes is matched when they fit perfectly.

Of course, here the retailer has done fantastically with the product, the customer acquisition and the delivery. The peak (the excitement and enjoyment of a new purchase) is very positive, and the end (a convenient and successful delivery) also leaves a positive lasting impression.

A very similar experience for another shopper, customer 2, has a completely different psychological impact. Let’s say she too has seen and purchased the same product, but what she receives looks slightly different in the box to how it appeared in the advert. That’s disappointing for her, and now she faces a chore to get her money back on top of the initial let down. That means packing up the parcel, finding out what the return procedure is, printing or sticking a label, re-sealing the box, finding the nearest post office and remembering to go there in the next month.

The peak, the most intense moment, is now the let down upon receiving the product, and the end is the hassle-filled return experience. The retailer didn’t do much wrong in the acquisition and delivery stage, but the net outcome will be a loss and a customer less likely to shop again.

That loss, and especially the money spent on acquisition, shows why retailers should view investment in the returns experience as investment in acquiring and retaining customers, rather than a pure logistical cost of doing business.

Convenience

Making returns easy is a key driver of loyalty. Difficult returns lead to unsatisfied customers – especially if the returns experience feels like they’re being viewed with suspicion, which can be the case with strict returns policies.

There are various angles for retailers and brands to approach convenience in returns from. Firstly, making returns available in stores – whether or not that was the origin of the purchase. Customers don’t see any reason why they shouldn’t be able to hand a purchase back to the retailer at any store – 50% of shoppers want to be able to return items to stores [Narvar]. To enable this, retailers can look at hardware options to help aid self-service. This reduces extra burden on store employees.

Lockers or drop-off pods can be used to give customers the option to scan their own parcel or barcode from an email, tracking the item and opening a locker or storage space for the parcel.

Alternatively, if returns are being processed at a customer service counter, an area needs to be set aside for the parcels and staff need to be equipped with handheld devices to scan in parcels.

For brands, there are reasons to consider allowing customers to return your branded products wherever your brand is sold, for much the same reasons. This may mean working with retail partners in order to set up pick-up and drop-off functionality in their stores.

Ultimately, one of the primary drivers of convenient returns journeys is the ability to offer a wide range of locations to actually hand over a parcel at.

More than just locations, however, customers need crystal clear communications in order for the return experience to be truly convenient. This starts by making customers aware of the policy and how they can benefit. It also includes displaying the locations where they can transfer the parcel, confirming the receipt of the parcel and the sending of the refund.

This communication currently is frequently broken up and can come from multiple sources like the carrier, collection point and retailer. Unifying this communications channel in a single brand makes it much simpler for the customer and the retailer alike to understand where they are in the journey.

It also enables a direct marketing channel to recapture the customer after their return, incentivising them to replace the item they’re returning.

Sustainability

52% of women and 46% of men intend to exclusively shop with retailers offering environmentally friendly fulfilment options in the future, per YouGov research commissioned by Doddle. As consumer behaviour continues to change in response to concerns about the environment, expect to see shoppers respond to retailers who can offer a genuinely more sustainable returns and fulfilment proposition.

For retailers, this is an opportunity to market their sustainability credentials and highlight the benefits of pick-up/drop-off locations where consolidated deliveries and collections helps minimise the number of journeys and therefore lowers the volume of CO₂ emitted as a result of deliveries and returns.

For example, ASOS include a line in their SMS delivery notifications mentioning that the vehicle delivering the parcel is electric, burnishing their environmental credentials.

What retailers need to do to have more effective, profitable and customer-pleasing returns

You need a great policy

Well, they won’t come back and purchase again if you don’t provide them a convenient way to quickly return unwanted products for a refund – so that means retailers must have a clear path for customers to follow to send back purchases. Straightforward communications start with an easily-understood returns policy.

Even better is a well-known returns policy, like those offered by direct-to-consumer brands such as Casper. They openly stake their reputation and product quality by offering 100-day free returns, which builds trust in both the product and the business before the purchase is even completed.

This is another element to the ecommerce returns opportunity. It is not just about the potential to increase loyalty and deliver better experiences, it also means improved conversion for first-time customers, benefiting customer acquisition.

The exact details of the policy that will work for your retail business is of course unique to your product, customer base and business. However in general, free returns are becoming more and more common and expected by customers, as 2/3rds of online businesses offer some form of free returns (Shippo).

You can also design your policy and implementation to drive customers towards stores, achieving two objectives at once by providing them with a great return experience and capturing their next purchase at the same time.

Increasing the time period in which a product can be returned can also have a psychological impact on ecommerce customers, reassuring them that if something goes wrong with their purchase, they have a means of recourse. This may make more sense for premium goods where customers are more concerned about the longevity of their purchase.

An interesting angle yet to be fully explored by retailers is the opportunity to move away from a single level of one-size-fits-all service when it comes to ecommerce returns. Just as customers will divide into different brackets and select different delivery options, so too they will divide into different preferences for returns including their desired level of service and willingness to pay.

Most retailers are a long way from being able to harness their ecommerce customers’ data regarding returns in order to accurately profile and personalise in this way, but it’s an approach to watch in future as a logical extension of the variety of fulfilment options now being embraced and offered at different price points.

Returns policies also need to be able to account for potential abuse of their generosity. Again, profiling and tracking customer behaviour can go a long way to restricting the exploitation of returns policies and minimising returns fraud in ecommerce. However, simple steps like ensuring the integrity of the goods-in process when returns are brought back to a fulfilment or distribution centre can help to reduce the impact and waste of returns fraud.

That covers a lot of what customers need and respond to – so what do retailers need in order to make this real?

You need an effective process

Investing in process improvements and technology which enables staff to spend their time more effectively is one of the most important ways for retailers to bring down the cost of ecommerce returns and maximise the positive impact on customer loyalty.

Simply moving to a paperless system for returns allows retailers to instantly save the costs of printing a postage label/sticker for every order. For customers, there’s no need to grab a pen and tick through the forms, and for staff back at the distribution centre they can process returns by just scanning the barcode without needing to manually input a returns reason or similar information into the inventory management system.

In order for this to work, retailers need a digital returns platform which customers can easily use to book a return. This is where a good return policy can be surfaced in relevant and timely ways – for example, reminding a customer that they have started a return but need to complete it within the window allowed by the policy. This type of helpful ‘nudge’ is currently entirely missing from almost all returns journeys.

The outcomes of a technology-enabled return process should be that products get back into stock faster, customer experience improves, costs go down and the service becomes much more scalable and less manual.

The bottom line

All of which should result in the profitability of your ecommerce operation improving.

When customers are given great experiences across the customer journey, they’re more loyal and ready to come back again. When first-time shoppers with your brand are weighing up a purchase, the knowledge that they can freely and easily get their money back if they make the wrong choice will help turn many of those undecided-at-checkout shoppers into returning customers.

We’ve also covered how using your returns offering as a marketing tool can encourage loyalty and drive more new shoppers to your site.

Fundamentally there needs to be a change in approach away from viewing returns as a cost centre, towards an understanding that logistics and fulfilment is one of the vital battlegrounds in retail today where leaders are competing for customers attention and loyalty. Look to Amazon’s push into brick and mortar locations in Kohls, Next and others to see how a major retailer is investing in putting its fulfilment (both collections and returns) in front of customers.

As this race escalates, the differentiator will be an understanding of the way that returns play into customer psychology and loyalty. Retailers who recognise this and harness technology accordingly to deliver the right service will capture an outsized share of customer loyalty and lifetime value.

You can download this guide as an ebook:

Doddle is a technology provider supporting retailers with click and collect, returns, and fulfilment from stores. Our unique intersection of experience with customers, retailers, carriers and technology means our partners can make powerful lasting impressions and continually earn customers’ loyalty. Find out how we can help to make returns a powerful, profitable way to deliver great experiences for your customers.

Your guide to ecommerce returns:
policy, process and profits.

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