Return management process: Nightmare or competitive advantage?

Speed + accuracy + transparency + cost + friendliness = the basic formula for effective returns management

Retaining existing customers is more cost-effective in the long run than investing resources to acquire new ones. One area that has a significant impact on customer retention is reverse logistics – the process of managing returns and claims.

Reverse logistics is an important part of both every online business and brick-and-mortar store sales. Therefore, it is necessary to focus on it from two main perspectives:

• Revenue – quality reverse logistics improves the customer experience, increasing customer lifetime value and average order value.
• Costs – inefficient reverse logistics has a negative financial impact both in the management process itself and in the outflow of returning customers.

Returns: nightmare or competitive advantage?

Returned goods are generally viewed as an unexpected cost. It’s no wonder. The returns process more or less replicates the original order processing. Therefore, with each returned item, you must take into account:

• costs of return transport;
• costs associated with the processing of returns and re-store;
• increased storage space requirements;
• costs associated with the disposal of goods.

In the case of ineffective return management, also with:

• possible loss of customer;
• possible spread of negative experiences online and by word of mouth.

Today, however, the cards are turning. In the eyes of end customers, quality reverse logistics is seen as a major competitive advantage. Why? For example, YotPo has quantified this clearly in its own survey:

• Returning customers make up only 15% of all online shoppers.
• However, returning customers account for 1/3 of all online shopping revenue.
• The value of a returning customer’s purchase is on average 3 times higher than a one-off purchase.

Also in the future, returns are expected to be a difference maker in the success of the business. For example, according to research by Invesp, up to 92% of shoppers say that an easy and friendly returns process is a reason to buy from the same retailer.

A well-managed returns process is also an effective tool for increasing average order values. In other words, a customer who perceives a retailer’s returns process as easy will include items in their order that they are not 100% convinced about… Items that they can then keep, even if not 100% fit. This increased average order value, combined with the user-friendliness of returns, ultimately leads to overall business growth.

Reasons for returning goods

The return ratio varies significantly depending on the product range sold, seasonality or place of purchase. For our clients, returns range from 1% for small hardware, 5-7% for fashion to over 20% for footwear. The return ratio increases when our client operates brick-and-mortar stores or usually after the sales peaks of the year (Black Friday, Christmas, etc.) when inappropriate gifts contribute significantly to the amount. Finally, goods purchased on online stores are more prone to returns compared to purchases in brick-and-mortar stores (30% vs. 8.89%).

In general, the reasons for returns can be divided into two categories: partially influenced x not influenced, depending on the possibility to reduce their share.

Partially influential returns

As the name suggests, the rate of this type of returns can be reduced by introducing corrective and optimisation steps. The classic reasons for returns are:

• customer orders the wrong goods due to incorrect or insufficient description or display of the product on the online store (22%);
• customer receives goods that they did not originally order, caused by an error in the order picking process (23%);
• customer receives damaged goods due to improperly used packaging and filler materials, or mishandling of the package during transportation (20%);
• customer orders the same product from multiple online stores with cash on delivery and picks up only the first delivered package, while the remaining packages are sent back to the sender;
• customer receives the order late, making it no longer useful to them.

Non-influential returns

In contrast to the above reasons, you can manage your online store with excellence, have a highly tuned order processing, have a sophisticated packaging method or work with the best carriers on the market. In other words, you can’t control the rate of this category of returns. The reasons may be as follows:

• customer orders multiple sizes/colours of one product and then returns the unsuitable ones back to the sender;
• customer orders products that they are not 100% sure about and returns them to the sender after trying them on;
• customer returns the goods without giving a reason within the statutory period of 14 days or within the extended period of the specific online store;
• customer is unreachable or unknown at the delivery address.

Return process in a nutshell

Returns management can be divided into 3 main steps, which can always be user-improved – either towards the customer or your own staff.

Step 1: Customer returns goods

The return process is triggered by the customer. The key is to have clearly defined and easy to follow return rules on your online store so that the customer has as little trouble as possible returning the goods. According to research, up to 67% of online shoppers check the return policy before making a purchase. As a recommendation, we offer some tips to help you start the return process:

• use banners that are visible enough on your website;
• use a return form and analyse specific details;
• send clear instructions with the order (either by email or physically in the shipment);
• send a generated return address label with the order (either by email or physically in the shipment);
• allow easy filling of details on your portal or app (including the ability to register for repeat returns);
• offer a refund option for return shipping (requested by up to 79% of customers);
• offer the possibility to return goods via your carriers’ parcel shops or in your brick-and-mortar stores (e.g. by scanning a QR code in the app);
• offer vouchers, discounts or credit for repeat purchases on your online store;
• use customised packaging for returns to reduce customer hassle and waste;
• extend the return period beyond the statutory 14 days;
• eliminate the obligation for customers to print their own.

Step 2: Receive of the returned goods

Whether you receive goods in your own warehouse, a brick-and-mortar store, a fulfillment center of an external partner or even at your own home, you always need to set up and gradually improve your processing procedure. Here are some recommendations:

• keep a systematic record of everything and automatically notify customers of every step (83% of online shoppers expect regular updates on the status of their goods);
• check the contents of the returned package – if everything is included as advertised, undamaged, complete, etc.;
• set quality limits on returned goods in relation to their further handling – i.e. under what conditions to restock, put in saleable condition, send for assessment, repair, iron, donate to charity or recycle.

Step 3: Complete the return process

In this step, the speed of your reaction is more important than ever. Here you need to reach the customer as soon as possible:

• refund the full cash value of the returned goods (if they meet the conditions you define);
• send a new order at the time of the exchange request, or if the original order was not delivered;
• mark the returned items as available again in stock for resale.

How to benefit financially from refund management

As returns are an integral part of any (online) business, they need to be seen as an area to increase profits. The key to success is improving the customer experience with your brand over the long term, building customer loyalty and improving internal processes. Only in this way you will create a positive shopping experience for your customers that they will be happy to return to. How to achieve this?

Focus on customer service

At this point, customer service employees are the face of your company. Take time with your (unhappy) customers and connect with them to get feedback. Try to recognize the customer’s preferences, wants and needs. Offer them a suitable replacement for the returned product or provide a discount voucher for their next purchase in your store.

Invest in inventory management

There are a lot of customers on the market every day with the “order – try – return” setting. This trend will continue to grow in the future due to increasing competition in technology, which will place ever greater demands on reverse logistics. Thus, to be profitable, you will need to work in advanced software that ensures your stock is always up-to-date and accurate. If you’re in the business of high reverse segment, it’s time to invest in a proper warehouse management system (WMS) that will ensure smooth management of individual stock items.

Communicate with your employees

Optimization in the return process is a never-ending story. And who better to learn from than your employees, who are involved in this cycle every day? Communicate with each other and collectively identify the gaps that create or hinder the processing flow. For example, if you continually receive damaged orders, work on improving the quality of packaging and types of filler materials.

Set a clear return policy

58% of customers require hassle-free return policies. Internally, set realistic time expectations, clearly define lead times for exchanges or refunds, and conditions for additional benefits (discounts, etc.). Here we offer suggestions for proactive solutions from brands such as TB12 or Ample Foods.

Can you improve the return process yourself?

Companies that invest in improving their reverse logistics experience reach a 12% increase in customer satisfaction and a 4% decrease in costs. Maintaining or even improving these numbers over the long term is a very challenging and difficult discipline.

One solution is to implement a returns widget that makes the returns process much easier for customers (we recommend Retino’s solution, for example). On the other hand, the time and investment required to optimize returns are frequent reasons why retailers choose to outsource their logistics to an external fulfillment service provider. Although returns management is an additional service for them, there are many companies on the market that have it firmly embedded in their business model.

At Skladon, we clearly define with each client individually during the onboarding process how to handle individual returns. For example, we agree with our clients on:

• A form of quantitative checks of the contents of the returned shipment, where differences with the original order are identified.
• Visual checks of the returned goods, where we look for signs of use or damage.
• In borderline cases, photographing the returned goods, followed by individual communication with the client about next steps.
• A form of putting the returned goods back into a saleable condition – repackaging products into new packaging, ironing, etc.
• Conditions for resending the order to the end customer, restocking, sending the returned goods to the client’s headquarters, disposal, etc.

In addition to the above-mentioned individual approach, we offer our clients the MySkladon client application. In this user interface, which informs the client about the complete status of his logistics in real time and 24/7, he also has access to an overview of his returns. The client is thus able to find out detailed information on the return ID level about the reason for the return, the current status, etc.

Would you like to learn more about how we approach returns and logistics in general for our clients at Skladon? Watch our company tour video.

WATCH COMPANY TOUR VIDEO

Streamline your returns process

No online store can eliminate returns 100%. However, there are ways to reduce this ratio or use the implemented optimizations as a tool for increasing profitability and for business growth.

Standards in returns are increasingly shifting towards the customer. If you don’t want to lose touch with the market, you need to adapt to the large and often technology-focused players.

Don’t look at the returns process as a lost profit, see it as an opportunity to improve your service in a competitive shopping experience… in short: aim for maximum pro-client.