Almost any retailer would likely agree that customer loyalty is one of the keys to a profitable business. Likewise, many would also agree that product returns kill those profits. Yet, what would you say if returns presented opportunities for merchants to find success in long-term customer care, stronger consumer engagement, and even more sales?
There are various unexpected benefits to product returns that may feel counterintuitive to retailers, particularly since returns are a growing issue. Worldwide it’s estimated that consumers make an estimated $642.6 billion worth in returns per year, with U.S. shoppers alone contributing $221.7 billion to that number.
Keeping this in mind, how can retailers leverage the seemingly inevitable amount of returns they’re bound to get? To start, they need to create a strategy to willingly handle returns rather than trying to fight them. One retailer that is famous for doing this well is Nordstrom, who is known for approaching returns with a friendly attitude — and as a result, their customer loyalty is strong and steady, with Nordstrom having reported a total company net sales of $4.1 billion for the fourth quarter in 2015, which presented an increase of 5.2%. While a generous return policy isn’t the only factor in their strong sales and success, Nordstrom’s renowned customer-centric practices certainly contribute.
The chain of department stores doesn’t approach returns with a black-and-white policy in place, but instead states on the website that it doesn’t “actually have a return policy for purchases made at Nordstrom stores or at Nordstrom.com.” Nordstrom further elaborates on this vague explanation, stating that they “handle returns on a case-by-case basis with the ultimate objective of satisfying the customer.”
Standing by the customer, as it turns out, may be the key when it comes to crafting an effective return policy. According to a 2015 UPS Pulse study, 88% of online shoppers reviewed a retailer’s return policy, and 67% of those checked the policy details before ever making a purchase.
Source: UPS Pulse of the Online Shopper
Obviously consumers are becoming far more conscious of the specifics in these policies and factor into their purchasing decisions. But merchants of all shapes and sizes can mimic this customer-centric returns approach, both in their online and physical storefronts.
To encourage consumer buying behavior, the key is to craft a return policy that makes sense for your unique business and your unique customers. But more importantly, it’s vital to introduce a policy that has long-term customer engagement in mind.
Crafting Your Unique Return Policy
It’s easy to create a return policy that states all returns must be made within 14 days of purchase and only store credits will be issued. But the easy way out doesn’t necessarily boost customer loyalty, does it? Instead, consider how a more strategic approach can help your business thrive.
First and foremost, it’s important to create a return policy that doesn’t just make sense for the products you sell, but also the customers you target. For example, are kids your target audience, making parents, grandparents, and countless gift-givers your target buyers? If this is the case, you need to consider that purchases made in your store may not be the right purchase for a variety of factors.
It’s also important to remember that consumers have various retailers to choose from when making their purchasing decision, and among the factors they will consider is an item’s returnability if it doesn’t meet their needs. Keeping this in mind, crafting a return policy that consumers are comfortable with will put shoppers at ease enough to buy from your store. This means stepping outside your own comfort zone to introduce a return policy that extends beyond the typical two weeks, but instead is 30, 60, or even 90 days out from the shopper’s original purchase date. Naturally, some exclusions may apply — even Nordstrom had to make exceptions for their special occasion dresses when it comes to accepting returns due to the countless times customers abused this privilege.
But a recent University of Texas-Dallas study published in ScienceDaily shows this kind of leniency in retail return policies directly affects return rates. The research demonstrates that if a retailer wanted to curb returns, longer deadlines (i.e. a 90-day return window versus 30 days) to make a return were more effective. This flexibility in the return deadline actually reduced return rates, based on the study’s findings. One of the research’s authors, UT-Dallas doctoral candidate Ryan Freling, explained the decrease in customer returns could be due to the “endowment effect” — the longer consumers have a product in their possession, the more attached to it they become and less likely they are to return it.
The cost of dealing with returns affects the bottom line. You want to look at the different dimensions of a return policy, because you may be able to manipulate the policy to achieve your goals.
Finding a balance between customer expectations and store inventory management is among the top considerations to review when outlining your store return policy. It is important to be realistic with the return policy while also being fair to your customers. To help identify what will make the most sense for your unique store policy, consider the following:
- What is your average inventory sell-through? For example, do you typically sell items within a 60-day cycle, meaning that from the time they were received in stock to the time they sell it takes less than 60 days? Or do you carry inventory longer than this, often pushing a quarter or even six months? The faster you turn inventory, the harder it is to push your return policy out. So keep this in mind as you identify what makes sense for your store.
- Do your vendors offer flexibility in terms of re-orders and other buying logistics? This is a key factor to consider when it comes to crafting your return policy because inventory is often controlled by its availability from your vendors. If a hot item, for example, sells out and is unable to be re-ordered, you should consider how this may influence your return policy. “One and done” is a common expression smaller merchants use when they refer to inventory management, suggesting that as you sell something you’re comfortable with not replenishing it.
- What are the return policies among your biggest store competitors? Like most things in life, competition is important to consider in an effort for you to better manage your own actions. If your direct competitors offer a more flexible return policy, consider how this will influence consumers are deciding between your store and their store for a future purchase. The reality is competition does exist. Therefore, it’s vital that you track what their store practices are, including return policies.
- Do you have a history within your store environment of return dilemmas, and if so, what are they? Often, merchants find that customer behaviors repeat themselves for a variety of reasons…and often, these reasons are fueled by the merchants themselves. Keeping this in mind, are your current return policies visible and easily understood for all customers to review? Do your employees share your policy with every customer anytime a new purchase is made? Making sure your policies as well as your staff communication and management of these are well executed can help eliminate consumer misunderstandings and ultimately returns, as well.
- Are your customers typically first-time buyers or returning customers? The importance in this will vary based on if a customer is familiar with your store or not, plain and simple. Your communication should be consistent either way, with new customers getting a more complete explanation of your return policy to help avoid any returns or confusion.
By asking yourself these questions and thoughtfully reviewing your responses, you can better shape the ideal terms of your return policy based on your customer’s needs, your inventory management, and your competition. Additionally, it can help you identify what you both want and need from your return policy — preparing you to create one that’s a better fit for your store.
The Unexpected Benefits of Returns
While crafting an in-depth return policy may not be the most fun way to spend your time, the good news is that anytime you welcome a customer into your store, it’s a good thing — plain and simple. Customer loyalty is built through engagement, and that happens even when merchants aren’t officially making money. Take for example, the moment a customer has identified that they need to make a return. This single instance welcomes the opportunity for a friendly, well-executed staff response or the opportunity for a disgruntled worker who dreads the immediate next steps. Which would you rather experience? For that matter… which would you rather the customers in your store to experience?
The fact is, a customer returning something means that you have an opportunity to make them appreciate your customer service, potentially buy something new, and at the very least, build a more engaged customer relationship. This customer relationship is an integral part of successfully sustaining a business, and this single reason alone is why customer returns should not be dreaded but rather welcomed as an opportunity to increase your long-term customer loyalty.
Customer Engagement: Improving the Return Experience
As you embrace the idea of returns, consider how to best manage them in your customer communication as well. Policies aside, how you engage with your customers will significantly impact their impression of your brand. They may react with disappointment about a defective product they purchased, or express frustration based on a poor experience they’ve had. It’s important to be supportive and sensitive to customer needs during return experiences. That means approaching the situation with a pleasant tone, a friendly demeanor, and a helpful mindset. To start, always ask the reason for a return and base the following steps on the customer’s response.
Avoid trying to upsell or suggest a replacement product if your customer is irritated. Instead, aim to deliver a customer service experience that they’ll never forget. However, if a customer seems to be disappointed they are making a return but hopeful they can find something else, suggest alternative products and offer them some time to browse your shop so they can make an exchange.
Source: UPS Pulse of the Online Shopper
Streamlining these experiences doesn’t just extend to in-store returns either. It’s in a merchant’s best interest to ensure online returns are just as pleasant and efficient — and one way to accomplish that is with preprinted return labels for items sent back through the mail. Going back to the UPS Pulse study, about half of the shoppers surveyed (52%) said including a return label in their box was a key element of a good returns experience. Just including this preprinted label can reduce the friction of online returns for customers. If a customer is dissatisfied with their online purchase, they can simply repackage it, stick the preprinted return label on, and slip it in the mail.
To offer return labels to include in your product shipments, here are a few logistics vendors who offer retail return services:
Offering the option for online shoppers to return their products in your physical storefront is another strategy to boost sales. The UPS Pulse survey shows that 82% of shoppers would feel more compelled to complete a purchase online if they could return the product for free in-store or with a prepaid label — further proof that an multi-channel return policy (and giving customers more convenient options) can actually help retailers’ bottom line by boosting consumers’ confidence.
The Bottom Line
Remember that strict, inflexible policies can impact your business, but not always in a positive way. Instead, embrace the opportunities that returns can bring your business, as well as the often overlooked benefits that returns can introduce to your long-term business strategy. Customer loyalty should be your number one goal when crafting your return policy and when done so successfully, you’ll be one step closer to achieving stronger business success.
About The Author
Nicole Leinbach Reyhle is the founder of Retail Minded and co-founder of the Independent Retailer Conference. In addition to helping small businesses and retailers build their businesses, she's also served as spokesperson for Small Business Saturday from American Express since 2014.