Guest Column | February 5, 2021

Returns Can Be Expensive, But They're Cheaper Than Losing Customers

By Dan Nevin, Chief Revenue Officer, Global Retail, Doddle

ecommerce boxes packaging

In 2019, a report found that online returns totaled $41 billion. Taken alone, it’s a scary figure, and it might lead a retailer to believe that the only response is to try to make that number go down by whatever means possible.

That headline is a bit unhelpful, though.  Yes, it’s a huge sum of money, but a figure presented without context reinforces the “returns fallacy” that they are nothing more than a money pit. The reality is that retailers pay the price of returns in exchange for a wide range of benefits, and the question shouldn’t be how to spend as little as possible on returns, just as you wouldn’t aim to minimize the cost of marketing. In both cases you want maximum effectiveness, not minimum spend.

What Is The Error Of Focusing Solely On Minimizing Return Rates And Costs?

If the view is that returns are an unfortunate cost burden, which retailers just must bear, then the logical approach is to minimize return rates. There are many ways to influence return rates, and not all are inherently bad for customer experience. However, among the most common approaches to limiting eCommerce returns is to deliberately make the process tedious and complicated – or simply allow it to remain that way.

Why is that a problem? Well, in the most basic terms, a new customer who has a poor experience when returning goods will likely only shop with a retailer once. The following table shows the percentage of customers who would reconsider shopping with a retailer again after they experience various irritations and hassles during the eCommerce returns process:

Shipping fees to return the item(s)

65%

Not being able to track the returned item(s)

40%

Restocking fees

63%

Having to print a returns label for the package

23%

Finding a location to return the item(s) to

39%

Needing to obtain a return authorization from Customer Support

37%

If the returns policy window was too short

40%

If the refund took too long

46%

Not having an option to exchange the item

34%

Other

1%

Don't know

5%

Not applicable - nothing in particular would make me reconsider shopping with a retailer

11%

(Source: Doddle-commissioned YouGov survey, n=1,386 U.S. adults online)

These factors stack up to seriously damage the chances of a repeat customer, especially in combination with each other. If a customer doesn’t come back after a troublesome return, a retailer can scratch off both their lifetime value and any investment they had made to attract that person in the first place. From a purely financial perspective, the retailer would probably have been better off if the customer had never shopped with it initially.

Scale that up and you can imagine how much-unseen damage is done to customer retention and marketing spend is wasted on customers who now won’t be coming back. The problem is there’s no way to know for sure how much this is costing a retailer because, for every return that does come through, despite the annoyances, there will be a proportion that never bothers to complete the return at all. In that case, the retailer keeps the sale, but it’s even more likely to have lost the customer.

This illustrates why returns have an essential role in maintaining loyal relationships with customers. Of course, like any investment in acquisition and retention, they must be managed wisely, and their effectiveness measured alongside all other standard metrics. That’s easier said than done if a retailer has not implemented a digital returns solution. Without one, they will find it much harder to capture the data needed to understand the impact and effectiveness of returns.

More Data Means More Effective Planning

A side effect of seeing returns through a cost lens for so long is that many eCommerce retailers are still operating a paper-based system. In doing so, they’re missing an enormous opportunity to mine customer, product, and operational data.

Retailers should consider returns technology that generates data on – and insights into – customer behavior, preferences and crucially, profitability. With these insights, retailers can positively impact a variety of functions, from product management to resource planning to marketing.  In addition, problem products can be flagged and rectified earlier, warehouses can be more informed, and return shipping can be managed with greater cost efficiency.

Easier Returns Drive Increased Customer Retention And Marketing Opportunities

A digital returns platform can also offer the easiest route for customers to organize their return – they make the request online, answer a few questions, and receive their shipping code instantly. It can give them a complete overview of their return and automatically update them on its progress.

Tracking notifications get checked an average of eight times per purchase, according to a 2019 presentation from global logistics provider Pitney Bowes. Automatic updates on a customer’s return can be a highly engaging touchpoint that a retailer can harness for marketing, helping to recover lost revenue.

In closing, while $41 billion worth of eCommerce returns in 2019 is a lot of lost sales, those returns also potentially could have bought a lot of goodwill and repeat customers, if retailers were set up to make that happen. There’s nothing wrong with reducing costs by becoming more efficient -- but reducing costs by making returns harder is a false economy.

About The Author

Dan Nevin is Chief Revenue Officer, Global Retail at Doddle.