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15 ways to reduce the cost of product returns

Updated: Aug 30, 2023

Managing and reducing the cost of returns is one of the biggest issues faced by retailers, distributors and manufacturing companies of all sizes. With the pandemic contributing to the increased growth of e-commerce, online sales have continued to grow, with a subsequent increase in goods being returned. Recent research suggests that customers send online orders back at two-to-three times the rate of in-store purchases. With e-commerce continuing to account for more sales versus bricks and mortar, it’s clear that it’s critical for a business to optimise its return processes.

Returns will never be reduced to zero, as it’s inevitable that items will be sent back. However, inefficient return processes put companies at risk of disappointing both existing and future customers and wasting valuable resources that could be better used elsewhere in the business. Improved returns processes can reduce the costs associated with managing returns and distinguish businesses from their competitors.

Ensure product descriptions are thorough and accurate

The two main reasons customers return their online purchases are incorrect sizing or unmet product expectations. Both are often as a result of the product information presented online being vague or inaccurate.

Online customers are unable to inspect a product, hold it in their hands, or in the case of clothing, try on a product to make sure it fits. By accurately describing a product, including good quality images, dimensions, accurate colour and sizing charts, key features and benefits, you provide the customer with enough information to make an informed choice, improving the customer experience and minimising the likelihood of returns.

Invest in technology

Manually receiving, restocking, refunding and reselling returned items is a laborious process that can waste precious resources and employee time. A cloud-based ERP solution with data from sales, finance and operations provides a centralised way to manage returns by tracking orders, inventory and communication across all fulfilment locations and customer touchpoints. It can also automate some steps associated with handling returns.

Order management systems (OMSes) increase transparency and trust among retailers, suppliers and customers by assisting all parties in tracking orders throughout the shipping process, while inventory management systems help teams receive, account for, restock and resell returned items as quickly as possible. Both reduce the amount of time spent processing returns, and thus the money expended on those activities.

When used with customer relationship management (CRM) systems that compile all customer data and transactions into a single database, retailers are able to build stronger client relationships, guide customers throughout the return process and retain and resell to previously unhappy buyers.

Provide ratings and reviews

Ratings and reviews on product pages are useful as they allow your customers to provide honest feedback on the quality, sizing and features of a product which helps potential buyers to make informed purchase decisions.

As well as engendering trust in your products, you can also gain useful insights into any issues as well as customer preferences that you can use to improve the design or quality of the item. This activity will also help to lower the rate of returns in the longer term.

Implement flexible return policies

More than half of online shoppers decide against making a purchase due to a company’s poor return policy or the expectation of a difficult return process, so a fair and flexible return policy is invaluable as it can benefit a business by both boosting sales and preventing returns.

Generous, customer-focused return policies that allow buyers to make purchases confidently, knowing that they can return products hassle-free and quickly, build brand trustworthiness, reduce customer cart abandonment and increase conversion rates. While establishing trust with customers is important to reduce the costs associated with returns, implementing an overly generous policy that’s open to exploitation and abuse will end up costing your business more money, so it’s important to get the balance right.

Allow in-store returns

Companies that operate both a bricks and mortar business as well as online, should enable a returns process that allows customers to make in-store returns, regardless of what channel they made the initial purchase through.

Returns to a physical store minimises the turnaround time for returned products to be restocked and prepared for resale, but they also avoid the risk of products being damaged or lost in the post. In-store returns can also reduce the amount of money retailers have to spend on return shipping fees, and rather than offering unsatisfied customers special promotional offers and discounts to make up for delayed shipments or refunds, you can provide those offers in store and hopefully make a new sale.

Given that they simplify the logistics involved in the return process for both the retailer and the customer, direct returns are mutually beneficial.

Communicate policies proactively

It’s important for your business to clearly communicate your returns policies to potential customers before they make a purchase. A documented returns policy that outlines the different types of returns promote efficiency and result in less time spent processing return orders. A good returns policy should consist of standard rules on the amount of time customers have to return an item, what items can be returned, the channels to return products through and the condition that returned items need to be in to provide a full refund.

Ensuring that your returns policy is visible is informative to potential customers and ensures that they have fair expectations. A clear returns policy page on your website together with signage at checkout counters in-store promotes transparency and can significantly reduce the employee time and money spent on customer service.

These rules can then be integrated into an order management system, enabling your business to process returns, fulfil exchange requests and refund customers more efficiently.

Use rules-based intelligence

Businesses that use technology with rules-based intelligence are able to predefine certain outcomes for returns based on product type, condition and other factors. Once an employee inputs details of a returned product, the system can guide the worker through the next steps they should take to either restock and resell products, liquidate them or destroy them, depending on item type and condition. By streamlining many of the tedious steps involved in accepting and accounting for returned items, businesses can reduce the amount of processing time and more rapidly prepare these products for resale.

Offer cross-channel purchasing

Many shoppers enjoy both the efficiency and flexibility of shopping online and the convenience that brick-and-mortar stores offer, which accounts for the rise of ‘click and collect’. Retailers with physical locations are missing an opportunity if they don’t offer cross-channel purchasing.

Customers who buy online and pick up in-store (BOPIS) are less likely to return items because they can both try on and exchange products on-site, have greater control in deciding when it’s most convenient to pick up their purchases and avoid paying for shipping — a leading cause of abandoned carts.

From a retailer’s perspective, BOPIS enables faster order fulfilment, lowers delivery and shipping costs — and basket abandonment rate — and has the potential to bring in additional sales as it increases store traffic.

Reduce the number of undelivered packages

When sellers fail to ensure that packages are reliably delivered, they risk losing customer loyalty, and wasting money on products and shipping, as well as receiving more returns. To avoid these unnecessary costs, you must take preventative steps, such as denying customers the ability to use P.O. boxes as delivery addresses — because packages are often rejected — and providing continuous and accurate tracking to ensure that customers can monitor shipments and see when they will receive their orders.

Additionally, to counter customer claims of package theft or failed delivery, retailers should consider either requiring signatures at delivery or have mail or shipper employees take pictures of delivered packages.

These processes mitigate the costs of undelivered packages, promote transparency throughout the shipping process and ensure that customers receive their items.

Don’t issue immediate refunds

To try and make the returns process more efficient and ensure that unhappy customers are quickly satisfied, some retailers are too quick to provide full refunds, even before assessing the quality and resale value of the returned product. This puts companies at risk of incurring more costs since they have to pay for return shipping and may not recover money lost on damaged items unfit for resale after they’ve already refunded customers.

It’s therefore critical that companies establish procedures and standards for confirming the quality and condition of all returned items before initiating a refund. Additionally, in implementing these procedures, retailers may realise that the return costs for certain items exceed the value of the product making it more cost-effective to simply refund customers and let them keep the product.

Collect customer feedback

In addition to enabling customers to leave reviews after purchasing a product, collecting customer feedback is another tactic to reduce the rate and costs of returns. Providing customers who initiate the online return process with a questionnaire to explain their reasoning is key to gaining valuable insights into expectations and preferences, as well as product quality. Whether returns are due to longer-than-expected delivery dates, incorrect sizing, unappealing colours, product defects or another issue, being aware of these enables businesses to pinpoint problematic products and improve them. Continuous product quality improvements are a proven method to lower the number of returns.

Review a highly returned product

Items that are returned at an unusually high rate are not necessarily defective or disliked by customers; they may just be being sold to the wrong customers or for the wrong uses. Taking a deeper look at how the marketing and sales team is both marketing and promoting an item can provide insight into why it’s often sent back or performing poorly in comparison with other products.

By renaming a product, adjusting its product description, promoting it using different marketing channels than those that were originally used, changing the sales strategy, or even tweaking the pricing, retailers can find the product’s correct target audience and thus lower the volume of returns.

Consider outsourcing returns handling

Accepting, restocking and reselling returned products can take up a large amount of time and resources, so outsourcing these processes to a specialist logistics company can reduce the cost of returns.

Third-party logistics companies specialise in providing services that optimises the returns process, maximising its efficiency and taking advantage of the best possible delivery rates. By assuming all responsibility for the reverse supply chain, the third-party logistics company allows you to focus your energies and resources elsewhere.

Employ data-driven, post-purchase communications

Once a customer has made a purchase, it’s important to stay in touch with them to manage their expectations. Many customers expect even the smallest companies to behave in the same way as Amazon, for example. Unrealistic perhaps, but technology does allow you to communicate easily.

Post-purchase communications keep customers enthused about their incoming orders and positively reinforce their purchase decisions. Regular delivery updates help manage expectations and foster a sense of anticipation.

By implementing a data-driven approach, in which sales and marketing teams are consistently exchanging information on trends around customer behaviour and shopping preferences, retailers can be smarter about how they communicate with customers. Using these insights to fuel increasingly targeted strategies can help educate customers on their recent purchases and further bridge the gap between product expectation and reality. NetSuite SuiteCommerce provides a complete e-commerce solution

As a retailer, your returns experience has a major impact on the trustworthiness of your brand and whether customers return to buy from you again. Unfortunately, returns tend to incur high costs that have the potential to reduce your profitability. However, by employing some of the strategies above you can optimise your returns process and reduce the costs of returns.

NetSuite SuiteCommerce provide a complete e-commerce solution that’s fully integrated with all the other capabilities of NetSuite, including finance, production and sales. It makes it easier to optimise your returns process as part of a successful e-commerce strategy.

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