How Can I Reduce Product Returns?

Alex ForbessBusiness1 Comment

how can i reduce product returns

The scent of Pumpkin Spice is blooming, and Santa has arrived at the nearest JOANN in your neighborhood. This can only mean one thing: Winter Shopping is Coming. It is a storm that arrives during Single’s Day, Black Friday and Cyber Monday, among others. And as cardholders eagerly plan for their next shopping spree, merchants, customer service, and dispute analysts are preparing for the upcoming storm of product returns. This is an ongoing battle that, in worst cases, can lead to additional fallout, ranging from high operation costs (to restock inventory) to dispute representment (to prevent revenue loss).

This year, as Winter Shopping approaches all of us, we looked over some stats in order to learn not only about product returns, but also what merchants can do in order to reduce it. Let us see how previous storms weathered out in the world of commerce and ecommerce.

The Cost of Product Returns

The term ‘expensive’ will be considered an understatement when looking at the cost of product returns. According to Statista, return deliveries are predicted to cost $550 billion by 2020. The list of factors keep growing year-by-year as shopping becomes more convenient, whether digitally or in-person.

For instance, Shopify found that 41% of cardholders buy a variety of products (of various sizes) with the intent of returning it. That one statistic is a big motive for companies to hire additional employees just to put the returns back in stock—and to lose more revenue while doing so.

And it is not just money that is affected by product returns. It is also the variable cost in time and processing in logistics. If your team does not have an effective workflow that handles product returns, let alone push products out of inventory, they are putting themselves at risk for additional fallout. This can include, but is not limited to:

  • Product returns mistakenly being placed back into current inventory, rather than return inventory
  • A sense of confusion as to where to place incoming product returns
  • Temporary ‘halts’ in logistics until everyone can process the returns quickly and efficiently

All of these fallouts, among others, not only generates revenue loss. It also wastes more time needed to resolve something that could have been easily prevented. For example, logistics will benefit greatly from revenue logistics. That allows them to reduce time spent on restocking products and giving your company an opportunity to some value from product returns (i.e., reselling bought goods).

Once logistics take a hit, everyone within your business will experience the fallout of product returns in one form or another.

The Fallout from Product Returns

The fallout from product returns can affect teams in customer service, marketing and sales, just to name a few examples. For example, the ‘try-before-you-buy’ model is starting to lose its advantage among sales reps. Moreover, their experience gives an assumption that the model itself is the primary cause of product returns during Winter Shopping.

That assumption is more pervasive than I thought. As I read the survey results from OnePoll, who conducted a survey among UK and US retailers in early 2018, I read two interesting findings. Not only did OnePoll find eight out of 10 retailers did not adopt a ‘try-before-you-buy’ model; it was also shown that six out of 10 retailers, among the non-adopters, do not plan to use this model within the next 12 months (from the date they took the survey). And the reason for this? It is mainly a mixture of fear for excessive product returns and not having a sustainable workflow to process it. From this end, it seems rejecting the ‘try-before-you-buy’ model as an attempt to prevent product returns altogether. (We will circle back to this topic later, and explain why this a problem.)

With regards to customer service, too many product returns will only burn more money and time during and after Winter Shopping has passed. Whether it is hiring more temps, throwing out old workflows to create new ones, there are numerous variable costs to consider.

How to Reduce Product Returns

So, what can we do? It is not like product returns will ever go away. Customers expect some kind of policy to let them to return products at-will, and 80% of them expect the return process to be free, according to Shopify’s study. And the whole phenomenon of rejecting the ‘try-before-you-buy’ model, that inevitably infringes on the underlying goal to weather out Winter Shopping: to provide a holistic and seamless experience in order to build customer loyalty.

While there is no standardized strategy to reduce product returns, we recommend that you use these tactics as a baseline. That will allow you to develop a strategy that integrates with your business model and your customer knowledge. We will begin by discussing how you should apply the ‘try-before-you-buy’ model, whether you are ecommerce site, a physical storefront, or both.

Insert (Augmented) Reality into the ‘Try-Before-You-Buy’ Model

Anyone can suggest customers to test out a product before they actually buy it. But it will take some skill, and very keen customer knowledge, in order to convert customers. Moreover, in an effort to reduce product returns, it will take some creativity in order to create a realistic experience for customers to envision product ‘X’ is something to keep as Winter Shopping passes.

This will require some technological enhancement for ecommerce and in-store merchants. That is where augmented reality (AR) is becoming a more critical tactic in reducing product returns. The benefit of AR is that it not only helps customers evision how they wear or use a product. It also helps customers evision how they engage with the product in their current physical environment.

Another AR benefit, as explained by Retail Dive, is its ability to generate longer brand engagement. As they engage with a ‘magic mirror’ at a storefront or place an augmented coffee brewer on their counter, you are letting them have fun with the technology until they are finally convinced to purchase. And while they are playing with AR, your teams will obtain highly qualitative data about their consumers and converted customers.

And lastly, for ecommerce merchants, integrating AR with your ‘try-before-you-buy’ model will act as a stronger barrier in reducing product returns. It will also help reduce the shipping costs involved during this trial period.

Here is one (mock) scenario that will his explain this better:

Try-Before-You-Buy (AR not included)

Try-Before-You-Buy (AR included)

Consumer sees a shirt online.

Consumer sees a shirt online.

A still image shows the shirt being worn by a model.

The ecommerce site provides AR, and the consumer actually sees himself wearing the shirt.

The consumer also reads the product reviews and product details before making the purchase

The consumer also reads the product reviews and product details before making the purchase.

The consumer makes the purchase online

The consumer makes the purchase online.

The consumer is now able to wear the shirt, but he is under-impressed as he sees it in front of a mirror.

The consumer is now able to wear the shirt. He already had a presumption of how it will look as he wrote it in front of a mirror.

The consumer will more likely want to return the shirt after experience buyer’s remorse.

The consumer will less likely want to return the shirt after having a more immersive product experience while e-shopping.

As the Winter saying goes, “seeing is believing.” And that could not be more accurate when it comes customers seeing what a product looks like during usage. AR is an invaluable asset to assure customers they are about to make the right purchase.

Display User Comments with Honor

User comments, no matter how positive or negative, should be displayed clearly next to every product. Negative comments may discourage them to buy the product, but positive comments will bolster confidence as the customer assesses the product via AR. Either way, you are creating an environment that will less likely attract product returns.

The goal for this tactic is to have the customer’s shopping experience transparent as it is seamless. There is nothing wrong with leaving some assessment to the customer’s imagination. But you want to give them clear insight of what the product has brought to past customers. Did the product give them a sense of confidence, or did it not meet their expectations. Let them know before they convert.

Create a Flexible Return Policy

It may seem counter-intuitive to create a flexible return policy in order to reduce product returns. The truth of the matter is that…it won’t. As mentioned earlier, customers expect merchants to have some kind of return policy for product returns. A flexible return policy is to assure customers that there is a ‘way out’ after making a purchase.

This is not to say merchants shouldn’t have a no-return policy since it is their right to do so. But a no-return policy, or a strict policy, more often discourages customers from becoming recurring customers. Moreover, and perhaps more noteworthy, no-return and or will put merchants at risk of receiving consumer disputes.

Indeed, no one likes product returns. That is why it is crucial to invest in help customer envision that they are making the right purchase. But a no-return and/or strict policy will give customers a feeling from being ‘boxed in’ from Winter Shopping. Their only option, if the feeling is overwhelming, is to dispute the charge and to receive a refund through their issuing bank. That in turn pulls funds out of your merchant account, and now you have entered the chargeback process.

The most likely disputes to occur from no-return policies, or strict policies, are those that dispute the quality of the purchased product. Here are some consumer dispute reason codes you should know:

Reason Code

Card Network

Description

How to Respond

C04

American Express

Goods or Services Returned or Refused

C31

American Express

Goods/Services Not as Described

RM

Discover

Cardholder Disputes Quality of Goods or Services

4853

MasterCard

Cardholder Dispute

4854

MasterCard

Cardholder Dispute – Not Elsewhere Classified (U.S. Region Only)

13.3

Visa

Not as Described or Defective Merchandise/Services

13.5

Visa

Misrepresentation

Other Fallout Resulting from Product Returns

Some customers may file disputes under malicious intent, which is known as chargeback fraud. With regards to product returns, a customer who falsely claims the charge was a result of fraudulent activity – even if there is evidence that says otherwise – is considered chargeback fraud. Here are some fraud dispute reason codes that may result from customers not being able to initiate product returns.

Reason Code

Card Network

Description

How to Respond

F24

American Express

No Card Member Authorization

F29

American Express

Card Not Present

UA01

Discover

Fraud – Card Present Transaction

UA02

Discover

Fraud – Card Not Present Transaction

4837

MasterCard

No Cardholder Authorization

4863

MasterCard

Cardholder Does Not Recognize – Potential Fraud

10.3

Visa

Other Fraud – Card Present Environment

10.4

Visa

Other Fraud –Card Absent Environment

Please note not all fraud disputes are considered true fraud. It may be classified as fraud even though the cardholder falsified his or her claim with the issuing bank. That is why it is always recommended to respond to every dispute. Never assume that a fraud dispute will inevitably result in revenue loss.

Bottom Line

The storm of product returns will always arrive. But merchants can take measure to not only reduce product return (i.e., AR), but to also reduce the fallout from product returns. By the time you have read this post, customers and cardholders alike have made more revisions to their shopping spree. It is only a matter of time before all workflows, from logistics to sales, must be streamlined in order to mitigate the storm. Winter Shopping Is Here.


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