How to Reduce Return Rates in Retail?

In the previous article, we have already seen that the return policy offered by a retailer can deeply influence their profitability as well as their cash flow.

Over the years, retailers have realized the tactical importance of return rates. As a result, they have taken measures to reduce the same.

In this article, we will have a closer look at the root causes of returns and try to understand which policies work when trying to reduce the return rates and which policies can be counterproductive.

  1. Limits or Charges: The first and most obvious step which comes to mind while thinking of reducing return rates is that retailers should amend their return policies. As per the amended policies, return should not be allowed freely. Instead, there should be some kind of limits which should be placed on the returns.

    Alternatively, retailers must find out their costs of processing a return and must charge the same to the customers if they try to raise a return request. Some retailers have tried to implement this policy and have found out that their sales start declining as soon as such a policy is implemented. Customers consider such retail policies to be restrictive and hence tend to take their business elsewhere. As a result, it can be said that levying charges or limiting the returns in any way is considered negative reinforcement and is avoided by the customers.

  2. Offer a Lower No Returns Price: Instead of penalizing customers who want to return a product which is considered negative reinforcement, retailers can also try to reward customers who do not return a product. This is considered positive reinforcement and is generally not viewed as negatively by the customers.

    In simple words, this means that retailers have a list price which allows customers to return or replace their products. However, they can offer a special discount if a customer voluntarily agrees to forego their right to return or replace the product at a later date.

    The monetary effect is actually the same i.e customers are being charged an additional price for the privilege of being able to return a product. However, they are being given a choice to obtain a lower price if they agree to forego this privilege. This pricing strategy works in situations where customers are fairly certain of the product they are purchasing. If they have doubts regarding the quality or fit issues related to their product, they may simply ignore the additional discount offered.

  3. Improved Descriptions and Images: It is incorrect for the retailers to assume that customers are at fault when they are trying to return a product. It is quite likely that the retailer themselves may be at fault and may have inadvertently communicated wrongly about the product.

    A lot of the times, products are not listed correctly on the retailer’s website. This could mean that the product has incorrect or incomplete description. It could also mean that the images attached to the product are not of high quality. Hence, while purchasing the product, the consumer was not able to accurately gauge the type of product that they are buying. In such cases, customers are dissatisfied when they receive the product and try to return it.

    Retailers need to track returns at an SKU level. If a particular product is showing a high level of return, then they must check whether the images and description accurately depict the product. A lot of the times correcting the images and description tend to solve the problem.

  4. Sizing Guides: Due to vanity sizing offered by brands, customers are compelled to buy different sizes of the same product when they purchase from different bands.

    For instance, customers may have to purchase a “Medium” size product from a certain brand but may be required to purchase a “Small” size product from another brand. As a result, it is important for the retailers to ensure that their product sizing guides provide an objective measure about the size of the products. This will enable the customer to decide the size which is likely to fit them.

    Retailers can also have artificial intelligence notify the customer and suggest the size based on past purchases. This is likely to bring down the rates of return.

  5. Packaging and Delivery Control: Many times, it is neither the customer, nor the retailer who is at fault for causing a return. Many times, products which were shipped by retailers in good condition are received by the customer in a damaged condition. In such cases, it is the logistics service provider who may have damaged the product while in transit. In such cases, retailers need to ensure that they build packaging and delivery quality control systems. Such systems are likely to reduce the problem of damage in transit and hence also likely to return the return requests.

  6. Consumer Awareness: It is also important to ensure that the customers are made aware of the ecological impact of their decision to return a product. There are many customers who are inclined towards preservation and saving the environment. These customers are less likely to initiate returns if they know that they may be causing damage to the environment.

  7. Deploying Technology: Last but not the least, companies need to deploy big data and artificial intelligence to help identify underlying patterns related to the returns.

    • Is it certain type of customers who return the products?

    • Is it certain types of products which see excessive returns?

    • Do the returns mostly happen at a certain time of the year?

    There are many such questions which can be answered by carefully looking at the data and the patterns that emerge out of it. However, implementing this solution may be an expensive and time-consuming exercise.

Retailers may have to use a combination of the above-mentioned policies in order to bring down their return rates. Some of these measures have proved to be quite effective based on data available from past retailers.

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Finance in Retail