Recent factors such as Covid-19 and the cost-of-living crisis have skyrocketed the rate of returns. When no one could head in-store, retailers implemented more lenient returns policies that would encourage consumers to keep spending throughout the uncertain period.
Now, with the cost of living crisis forcing consumers to tighten their purse strings, if products aren’t ‘perfect’ and shoppers aren’t 100% sold on them, they’ll give in to purchase regret and look to get a refund as soon as possible.
This change in behaviour cannot be ignored. Today, over 90% of customers make repeat purchases based on a company’s return policy alone, so brands must carefully consider their response. With that in mind, how can retailers create a returns experience that ensures their customers remain loyal?
Two different approaches
Retailers are choosing to tackle the issue of high return rates in a multitude of ways. Some of the most well-known brands have introduced a fee (or are considering doing so) that customers must pay to return items, whereas others have gone in the opposite direction and are simply letting consumers keep items so that they don’t have to process returns.
Take well-known high-street and online fashion brand Zara, for example, which is now charging a blanket fee of £1.95 to return clothes. However, items bought online can still be returned for free in-person in a bid to encourage more customers into its brick-and-mortar stores. Uniqlo and Next are some of the other retailers having already taken this approach.
While these choices highlight the fact that there are multiple ways that returns can be handled, it’s clear that retailers need to protect their profit margins by revisiting their returns policies. However, the ‘one size fits all approach’ doesn’t work, and treating all shoppers the same way will undoubtedly have a detrimental impact on the valuable brand-customer relationships that these companies have spent so long building. This is potentially a very damaging route to take, especially for those companies that rely on shoppers returning to make high-frequency purchases. So what’s the answer?
Reward, don’t punish your best customers
Navigating returns logistics can be a real headache for online retailers, but in an environment where customers cannot see or feel the products in person, easy (or free) returns provide peace of mind and increase retention.
The solution is clear. Brands need to take a much more personalised approach to refunds and offer varying refund options based on the combined lifetime value of their shoppers. For example, one-off purchasers might have to pay to send back items, whereas repeat customers get the benefit of more options, such as free returns or free return pick-ups.
Brands might even decide to use loyalty tier programs to segment their approach to returns, offering top tier members the best returns options, making it far more desirable for shoppers to carry out the actions needed to reach this level.
Alternatively, businesses can think of fun and innovative ways to help their customers reduce unwanted stock themselves. For example, yoga and activewear brand Lululemon encourages customers to trade in their items to a local store so that they can be refreshed and resold to someone else. When a customer does this, they receive credit to spend in-store, and confidence in the brand grows because they know they can always get a return on the clothes they no longer need. As a result, Lululemon benefits from increased customer retention on top of the original sale.
Trying to save money by implementing more cost-effective returns policies might have its perks in the short-term, but ultimately, brands run the risk of consumers not returning because they simply don’t get an experience that’s worth repeating.
The marketplace is incredibly volatile right now and brands are not just up against others selling the same products in the same space. They are also competing with brands selling completely different products as customers have less disposable income and are more selective with their purchases. A returns experience that is costly or complex may cause shoppers to prioritise not just a different brand, but a different purchase entirely.
Businesses that prioritise quick wins within their returns policies in a bid to counteract slowing profits are jeopardising their longer-term growth by neglecting their customers in the current market.
Charlie Casey is chief executive of LoyaltyLion