Updated: Sep 7
Returns present a unique opportunity for online retailers to cultivate and maintain a devoted customer base. Despite the additional costs involved, a staggering 51% of customers actively avoid shopping at online retailers with stringent return policies. According to surveys conducted in 2018, 62% of customers express a willingness to make repeat purchases from brands that offer free returns and exchanges. Additionally, 69% and 67% of respondents respectively would be discouraged from making online purchases if they were charged for return shipping or faced restocking fees. These statistics highlight the critical role a returns strategy plays in the success of an eCommerce business, considering that such retailers experience returns ranging from 20% to 30% of total transactions, in contrast to the approximate 9% returns encountered by brick-and-mortar retailers.
The primary reasons customers cite for returning products are twofold:
(1) product mismatch with the description, and
(2) product defects or damage. Notably, approximately 72% of returns in the fashion product category stem from the first reason. Other common causes include poor product quality, ordering an excess quantity, delivery issues, no longer needing the product, and serial returns. Furthermore, eCommerce sales have seen a rise in returns fraud, wherein customers intentionally exploit the returns process to profit monetarily. An example of this is seen in the online purchase of clothes, where some individuals buy products, use them for an occasion, and subsequently claim returns. To address these reasons for returns, online retailers must establish comprehensive and user-friendly return policies.
As previously mentioned, a flexible returns policy not only attracts customers and fosters loyalty but also serves as a potent marketing tool. It can help minimize costs and reduce customer acquisition expenses for the eCommerce business. Consequently, a returns policy assumes critical importance within the eCommerce landscape. The specifics of a returns policy depend on the retailer's product type and business model.
Key aspects that should be covered in a well-crafted policy include:
1. Offering returns and/or exchanges
2. Determining whether return shipping is free or subject to a certain percentage charge (with variations for domestic and international returns)
3. Providing guidelines regarding the product's expected condition upon return
4. Describing the return process in clear terms for easy customer comprehension
5. Offering multiple options for returns, such as posting from the nearest post office, returning to a nearby store, or arranging a pickup
6. Establishing a specific time limit for returns (e.g., 30, 60, or 90 days)
7. Deciding whether to include a shipping label for returns
8. Disclosing the timeframe for processing returns and resolving issues, which may involve reshipping the order or providing store credit.
A returns policy must strike a balance between simplicity and visibility for customers while also being comprehensive enough to protect both the online retailer and the customer from potential disputes and dissatisfaction.
When factoring returns into an eCommerce business model, it is crucial to consider the associated costs. While transportation, encompassing shipping, packaging, and labeling, may appear to be a significant expense in the return process, it is often the costs related to damaged goods and reselling that exceed the product price. Additional labor is required for return shipping, inventory management, and customer service. To incorporate returns into an eCommerce retailer's business model, for example, if an online retailer is selling $50,000 per month, they can budget for a 30% return rate, amounting to additional costs of $15,000. This cost can be allocated across the entire product range or specific categories where higher return rates have been identified. As the eCommerce business gains experience and continuously refines its returns policy, the return rate is likely to decrease, subsequently boosting revenues and expanding the customer base