Artificial IntelligenceProduct ReturnsRetailTechnology

Product Returns in Online Retail: The Good, Bad & Solution

By October 31, 2019 No Comments

While product returns are a menace that eats at the profit margin by increasing operational efforts and devaluing products with time – it’s also a necessary evil, given that superior customer experience is contingent upon hassle-free and no-cost returns. Exceptional customer service is the new marketing, and such is the contributing factor of return policies that 96%  of customers have stated that they would shop with a retailer that offers an easy return policy. And e-tailers have significant customer acquisition and marketing budgets, they often overlook the fact – that the acquisition cost is seven times more than retention cost.

The bigger players may have had the financial wherewithal to absorb or mitigate the impact of product returns, but the growing quantum of returns will soon have massive financial implications on even the biggest names. In fact, the giants are already feeling the burden and acting out against such infractions. In 2018, Amazon decided to ban customers who made too many returns by shutting their accounts. Product returns are speculated to cost nearly $550 billion by 2020, an alarming 75% hike from 2016.  Not to mention that inventory losses, restocking & manpower expenses, and increased logistics further add to the overall cost of returns.

Today, e-commerce stands at the forefront of the retail sector with a huge market share to its name. But the growth of omnichannel brands coupled with growing customers’ preference for click-to-door deliveries has sent the players scurrying to grab digital eyeballs and generate sales.

However, it’s a classic catch-22 situation. With the burgeoning growth of the mega players who can afford to subsidize deliveries and even undercut prices, the mid- and small-sized retailers are forced to maintain liberal return policies to gain market share.

Retailers have the power to reduce returns

Often, the fault lies at the retailer’s end. Majority of the customers initiate a return because of incorrect description or defective items. Through a combination of drafting a plan of action for returns and leveraging existing technologies, retailers can drastically curb the high rate of product returns.

 

Adopt a liberal returns policy

That may seem counter-productive as a hassle-free returns policy may prompt customers to return more. But, take a deep dive into any business and you’d realize that nothing hurts the business more than churn. Churn is incidental upon a negative customer shopping experience, and with data showing that 82%  customers avoid repurchase because of the difficult return process, it’s critical for a business to promise quick, convenient, and free returns to bolster their customer retention number.

Create in-depth customer segmentation

Similar to marketing, the return rate can be drastically improved by classifying customers according to purchase history, interests, trends, digital interactions and more. This aligns products with customer’s preference and helps retailers to subsequently push highly targeted campaigns, thereby reducing chances of return.

Leverage AI to deter serial returners

What’s also interesting to note is a perplexing shift in consumer shopping behaviour. While returns are inevitable – sometimes the product may not fit right or match up to the expectations.  But recent trends reveal a pattern of the habitual returner. It’s been observed that two categories of customers have cropped up, who contribute to huge returns

  • The one-time-wearer: who orders online with no intention to keep the product
  • The trial-room-at-home: who’ll order different colours and sizes of the same product to try and find the right pick.  

Standard measurements and vanity sizing leave huge room for errors. Artificial Intelligence (AI) integration provides more accurate insights into sizing by understanding the varying sizes from one brand to another, and therefore, helping customers pick a fit closely matching their body type, size, and preference. Additionally, it also helps to identify serial returners through data collection and analysis, in addition, to understanding return rates. Once identified, retailers can individualize return policies, such as charging for reverse logistics, etc. to deter them from returning merchandise.

 

Create a visually charged shopping experience

Since we’ve already established that inaccurate description and visuals are one of the key reasons for returns, retailers should look at optimizing the shopping experience through 360-degree high-resolution visuals. This is one area where immersive Augmented Reality (AR) will go a long way in reducing returns. A major online shopping concern is the lack of real-life fit of the product. Employing AR to allow customers to try on clothes or to visualize furniture in their own home rather than a representational setting gives them an explicit preview of the product fitment.

Plus, you can achieve this with a minimum cost to the company. Take, for instance, Flixstock, which uses customer-generated mannequin images to turn it into model photography. Once the retailer sends in a single image with apparel on a mannequin, Flixstock deploys intelligence to not just turn it into a look on a model at different angles, but also showcase colour variations. This minimizes the need to invest in fashion photography and inventory stocking.

 

Leverage technology and vendor partnerships to improve efficiencies

While these tips help to reduce the incidence of return, there are multiple ways to optimize the return process after it’s been initiated. Retailers can recoup lost sales through partnering with vendors or utilizing apps to redirect returned items to other customers or to be sold on other platforms. Third-party logistics have also recognized that it’s no more about the linear company-to-customer trajectory anymore, it’s more about company to the customer to back to the vendor or wholesaler for restocking and then forward to another customer. In fact, the growing returns problem is so pertinent that UPS has labelled December 18 as National Returns Day, a day when the company sees the highest number of package returns.

Enhancing their logistics capabilities with better visibility, tracking, and widespread alternative pick-up and drop locations also latently help retailer to optimize the reverse supply chain process.

Instead of getting demotivated by the returns, retailers should look at it from a brand-building perspective, wherein they establish better customer relationships and retain recurring customers. Employing other strategies will further take care of the returns problem that impact the economies of operations, and boost organizational profitability.