We’ve all bought something that isn’t quite right, doesn’t fit, or isn’t needed and decided to return it. That’s why returns policies exist - it’s a normal shopping behaviour and a standard cost of doing business. Ecommerce, however, is changing everything, and returns are no exception.
To compete in the increasingly competitive retail space, many ecommerce merchants offer free shipping and returns. In theory, this is a win-win. Consumers can purchase without risk, knowing that getting their money back is as easy as attaching a return label, and retailers should see higher sales as a result. But when a generous returns policy is taken too far it can have a massive financial impact on retailers.
Recent estimates indicate 30% of eCommerce orders are returned, at a cost to UK e-retailers of £20 billion per year. That’s a huge amount of money, and it’s not going away. Shoppers have grown so accustomed to free returns that 85% of US and UK consumers now expect them.
So, what can ecommerce retailers do to continue offering customers great service without breaking the bank?
Return abusers - also called “serial returners” - take advantage of lenient return policies to purchase multiple items and keep few - or even none - of them. They may want to comparison shop in their own home, “borrow” an outfit for a special event, or impress their friends by posting an expensive item on social media. Whatever the reason, when these serial returners send their goods back, the retailer winds up with a major loss.
Retailers can respond to this by enforcing a return policy that disincentivises those serial returners. By looking at their costs and margins, retailers can set a threshold for acceptable returns. For shoppers who exceed that threshold, retailers can - and should - require that they shoulder some of the burden of their returns by paying for return shipping or a restocking fee. What happens next, however, can make that tricky.
When serial returners are faced with these additional costs, they often look for a way around. “John Doe” may also open an account as “Jonathan Doe” or “Susan Smith” or use the guest checkout option to avoid detection. This adds complexity for retailers. While they may know that John Doe should pay for his returns, how do they know how to handle Susan Smith?
Technology can help. One of the major advantages of ecommerce is the huge amount of data available to examine purchases and make decisions. By using artificial intelligence (AI), retailers can evaluate the data from online transactions to identify the individual behind a purchase, even if that individual is taking steps to hide his or her identity.
And when ecommerce retailers partner with a solution that works across multiple merchants, they may be able to see this behaviour in practice before it reaches their store. That’s huge, because when retailers have a full picture of which customers are serial returners and which are legitimate, they can apply policies that correctly incentivise them.
Once retailers are able to accurately distinguish good returners from serial returners, they can confidently apply dynamic return policies.
For example, when a new customer visits your store, retailers can - and should - continue to offer a free shipping/free returns policy. That’s a great way to bring a new customer into the fold and give them the best possible shopping experience. The same, of course, applies to frequent customers. Retailers should keep them coming back with great service and free shipping.
On the other hand, when a serial returner attempts to place an order, merchants should apply a different return policy. In addition to the restocking fee or return shipping costs mentioned above, retailers can consider shrinking the return window or refunding the consumer’s money as a store credit. These changes should, of course, be clearly communicated. The intent is not to trap the customer into keeping the goods, but rather to prevent the customer from abusing the policy in the first place. Clearly stating that policy will best accomplish the goal.
By doing so, retailers can shift the cost of overzealous returns back on the customer. If they intend to keep their purchase, then this one-time fee may have little impact, but if this transaction was more “borrow,” than “buy,” they might think twice.
By embracing a technology-forward approach, retailers can have their cake and eat it too. Legitimate customers benefit, serial returners face costs in line with their actions, and retailers maximise their revenue while minimising costs. Retailers can give the most desirable customers a truly great experience and keep them coming back for a lifetime of purchases.
Assaf Feldman is co-founder and chief technology officer of Riskified
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Author image courtesy of Assaf Feldman/Riskified