E-commerce has been on a roll. According to US government figures, it's already 8.1 percent of all domestic retail. But finding more success online can also mean encountering more challenges, such as an increase in chargebacks or returns.
According to Deloitte, a good return policy has become a key competitive advantage in e-commerce sales. We think that makes sense. If consumers know they can easily return an online purchase, they'll feel reassured and be more likely to buy. But favorable return policies can also open the door to more returns. UPS says that return rates for e-commerce are three times higher than for brick-and-mortar sales, and can hit 30 percent of sales in certain categories, such as apparel.
And it's not just the hassle of dealing with returns that creates a potential problem. When you add up transportation, handling, and warehousing costs, processing returns gets expensive. One sportswear merchant told Internet Retailer that a $40 returned order can cost $15 in shipping and handling. In addition, because you refund the original price, you lose all the margin dollars, turning a one time sale into a net loss.
Unless you get returns under control, the more you sell, the more money you can lose. Reducing return rates can improve not only profitability, but also the buying experience, which means better long-term relationships with your customers. Here are three ways we believe can help reduce online returns:
Be clear: Consumers can't pick up and handle the products they see online before buying, which puts them at a disadvantage. If they misunderstand something about the product, they may be unhappy when they receive their order, and are likely to return it. Set expectations by being as clear as possible on your website or app. Include detailed product descriptions; well-lit, high-resolution photos of products; videos that show a product in use; explicit sets of requirements for use; and customer reviews. The more informed your customer is, the more likely they are to choose the right product from the beginning.
Get better control over product quality: Product quality issues that stem from your supply chain can blindside you and lead to unhappy customers. Quality issues can crop up almost anywhere: during the creation of materials, subassemblies, or ingredients; through manufacturing and assembly; or even during delivery. Cut the surprise by thinking like a manufacturer. Get detailed quality testing reports from your suppliers, including quality information about individual components, and look for deviation from set specifications. The more that parts or materials stray from the characteristics they're supposed to have, the greater the chance of quality problems in the final product. Conversely, the more controlled and predictable your supply chain, the more likely it is that your customers get what they want and expect.
Mine your data: The old 80-20 rule, called the Pareto principle, says most returns will probably come from a small percentage of the products you sell, so analyzing your sales and product data can pay off. Look for patterns in returns: are there specific products, or even single SKU numbers, that cause most of the problems? The more closely you can identify the culprits, the better you can adjust your product mix to avoid some -- or even most -- returns.
When you improve communications, get control over product quality, and can clearly see the source of problems, you address three of the biggest reasons your customers return products. The results? Higher profitability, more efficient operations, and happier customers.