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Boost Conversions with Return Policy

Improve Conversion rates with your Returns Policy

Returns are an often over looked tool in increasing conversion rates. This detailed blog examines multiple studies on how the leading online merchants are leveraging their Returns Policy to boost conversion rates.

Returns are the new normal

Returns are the new normal.  Attractive Return Policies from competitors and the desire of online shoppers to avoid the financial downsides of poor purchasing decisions, means Returns are here to stay. The over-riding evidence clearly indicates that returns are a key ingredient in your eCommerce success. Unless done right, your approach to Returns can erode conversion rates pre-purchase and deplete margins post-sale and potentially threaten the very viability of your business. Given their importance, Returns should be front and center in your e-commerce strategy.

Returns Impact Sales

SHOPPERS READ RETURNS POLICIES

It’s now widely accepted that digital consumers read the Returns Policy before making a purchase. Several studies confirm this trend, differing only on the proportion of ‘readers’:

  • 49% shoppers read returns policies according to a 2017 Narvar study
  • 66% shoppers read returns policies according to a 2015 UPS study
  • 63% shoppers read returns policies according to 2012 Comscore study

 KEY TAKE OUT:

  1. Shoppers want to see your policy – make sure it’s easily accessible
  2. Measure the traffic to your policy so you understand its readership

RETURN POLICY IMPACTS PURCHASE DECISIONS

Not only do digital shoppers read policies, but the policy impacts their purchase decisions

  • 51% of US digital buyers avoid purchasing goods from online retailers that do not offer free returns according to a Nov 2018 survey from omnichannel ecommerce company Radial. Digital consumers were most hesitant about the return process for clothing and accessories.
  • 18% of UK shoppers report they will only choose retailers that offer free returns according to a May 2019 Barclay study.
  • Restrictive returns policy will prevent customers from buying with 84% indicating restocking fees and 74% indicating return shipping fees are a turn off according to the 2017 Narvar study.
  • The dated, 2012 CNBC report, found sales increase when free returns are offered (up to 357%)

 KEY TAKE OUT:

  1. Make sure you craft your policy to assist in conversions. Note, free is not necessarily best
  2. Pro-tip: A-B test different return policies for greater clarity on what’s best

POOR RETURNS EXPERIENCE HURTS REPEAT BUSINESS

When goods are returned, the experience is as important as the actual policy

  • At the point when return shipping, expenses are charged, 81% of consumers are more averse to make a future buy – Upstream Commerce
  • 81% of consumers need an advantageous returns arrangement that is without bother and with no arrival shipping cost – UPS

 KEY TAKE OUT:

What happens when customers return something, can be as important as the Policy itself

Your Competitors are doing it

Industry commentators illustrate the prolific adoption of Free Returns. The 2018 L2 Gartner study, (one of many such studies), shows how major Retail Brands offer Free Returns is high (84% late 2018) and it has been trending upwards (70% in 2017). The key take out here, what your competitors do (competitive pressures), can’t be ignored.

KEY TAKE OUT:

Returns Policies can’t be ignored and ensure you’re aware of what your competitors are doing

Returns Policy as  Conversion Optimisation tool

Consumers purchase with the intention to return

With the widespread availability of Free Returns, we’re seeing the behavior of online shoppers change, with increased costs for the retailer. Emerging behaviors include Bracketing and the Serial Returner.

BRACKETING

  • Bracketing, the practice of purchasing multiple variations of an item (color, size etc) with the intention of returning some. Shoppers who bracket by category:
  • 40% of digital buyers say they use bracketing some of the time; luxury shoppers do this 51% of the time. Bracketing by it’s very definition, means goods are being purchased with no intention of retaining – so inevitable returns eventuate, source: Narvar June 2017 survey of 677 digital buyers who had returned an item in the past six months.

Serial Returner

  • The rise of the ‘serial returner’ was publicized by the UK’s BarclayCard in their 2018 study, which indicated:
  • 47%, or almost half the amount consumers spend, ends up being refunded by retailers. While Brits splash out on average £313/$394 USD on online clothes shopping each year, they actually end up sending back £146/$184 USD worth of this (47%).
  • almost a third (33%) of UK shoppers now buy clothes online expecting that items will be unsuitable before they’ve even tried them on.
  • Retailers are also reporting other factors driving increased adoption of Free Returns including consumers desire for new items needed to create fresh Instagram looks, or new Fashion items needed for special event.

Key take out:

Consumer behavior has changed from ‘I want to buy this and may return it if it’s not suitable’ to ‘I am likely to return half of what I buy’ and you need to manage this change.

Why people return

Return Magic compiled this information after looking at returns across 1,000 businesses and 800,000 Shopify customers in multiple industries. Top reasons for returns:

  • 52% Size (30% too small, 22% too large)
  • 12% Changed my mind
  • 8% Style
  • 5% Not as described
  • 5% Defective
  • 18% Other or not specified

Key take out:

  • Reportedly, half of returns are size related (i.e., fashion/apparel face the biggest challenges with returns)

Industry Response

The huge cost of returns is now widely recognised as a growing challenge for online e-commerce. The online industry is responding.

  • Returns Policies have been tightening. Forbes reported that both LL Bean and REI tightened their return policy in 2018.
  • Amazon now permanently bans serial returners according a May 2018 report in the WSJ.
  • 20% of online stores, including fashion brand ASOS, have tightened their returns policy in the past 12 months and another 19% plan to do so according to a May 2019 study from Barclaycard, of 2,004 UK adults.

Retailer Action to Combat Returns

Barclaycard report UK Retailers report taking the following 10 steps to address the Returns epidemic.

Action % Retailers
Provided more information about products online, e.g. exact measurements52%
Made the returns policy more transparent e.g. making it more prominent on a website48%
Increased the price of items to cover the cost of managing and processing returns29%
Worked with a logistics provider to speed up the returns process28%
Introduced a new system to handle returned stock that can’t be re-sold26%
Ensured ‘quality purchases’ by limiting the options available to customers based on preferences25%
Ensured ‘quality purchases’ by limiting the options available to customers based on preferences 23%
Lengthened their returns policy 23%
Hired more employees to process and manage returns 20%
Introduced a ‘try before you buy’ service – allowing customers to only pay for items they decide to keep 18%

Serial Returner Crackdown

A/B testing is the most reliable way of determining which changes to your online assets generate improved results. I can’t recommend A/B testing strongly enough. A/B testing allows you to:

  1. learn what your audience needs to convert
  2. streamline the journey through your website, reducing friction at all stages
  3. improve your conversion rates and boost your bottom line

A/B testing is not a single event, but rather a philosophy. A/B testing allows you to improve the performance of your online assets, but it can do more. You should always be asking yourself if there is A/B data to support the effectiveness of an idea, a tool or any approach you’re considering. Adopting the philosophy of A/B will serve you well – get started on your A/B journey today.

The crackdown on serial returners involves identifying serial returners from their shopping patterns and insisting returned items are in resale condition with original packaging and all labels attached.

 Here are some suggested approaches to protect yourself from serial returners by utilising automation in your ecommerce platform.

  1. Set refund thresholds based on the number of returned items or per-order dollar value (here’s an example of how to do it in Shopify Plus), then use your threshold to automatically
    1. Tag customers for identification and segmentation
    2. Add those customers as a segment within an onsite personalization tool to exclude them from free shipping and/or full-refund offers, or
    3. Exclude them from free shipping at checkout by creating a checkout/shipping script based on one or more of your customer tags
  2. Ensure your customer service team is aware and follows up

 Key take out:

Protect yourself with safeguards built into your Returns Policy and your Returns Process.

RETURNS PAYMENTS

Retailers manage return payments via 3 main strategies (Source Return Magic):

  1. 18% exchanges (e.g., item of another size or type)
  2. 18% gift card (Store credit)
  3. 64% refunded payment

Merchant fee’s can differ on each option, e.g., no fees on gift card or exchange, some fees on refund.

Key take out:

  • Exchange, Gift Card and payment refunds are available options to manage return payments.

Logistics Tools that help

Niche players have emerged to assist in helping manage the logistics of Returns. Returnly, Loop, Happy Returns and Return Logic are some suppliers in this space receiving good customer reviews. In addition to their offering, you may gain further insight from the list of clients they parade – any similarities with you or your vertical?

Your Return Policy

Generous online shopping Returns Policies were arguably initially driven by businesses looking to differentiate and grow their market share.

A Nov 2016 Swedish study looking at Returns Policies in Fashion e-commerce found that Free of Charge Returns Policies do not necessarily benefit retailers in terms of long-term profitability. Instead, they saw the best results for the retailer when they adopted a lenient returns policy. Their key finding was that returns policies for Repeat customers generate a significantly higher contribution per order, while returners and customers who enjoy free returns generate a significantly lower contribution per order.

If you have the data, look at how your returns vary with sales. Understand where you best customers lie and take this into account when crafting your returns policy.

Key factors to consider

When crafting or reviewing your Returns Policy, you should weigh these factors

  • Are you designing and optimizing the returns experience for your customer or your business?
  • What price point of the market are you in, what is the best policy for this market segment? E.g., do people need a generous policy to return a $10 t-shirt?
  • Competitive pressures – what are your competitors doing
  • Factor in the cost of your policy
  • How you implement your policy

The cost of your Policy

Zappos (Amazon) is often cited as “the model” for a great return policy. However, Founder Tony Hsieh reveals in ‘Delivering Happiness’ that it was a severe drain on profitability and at times they could barely meet payroll – resorting to more VC funding to stay afloat. Amazon eventually acquired them for less than a 1x multiple when similar companies were going for 4-5x multiples. The key take out, Free Returns have very real and significant financial costs. Ensure you can meet the costs of your policy.

Policy Implementation is Key

Studies show three key themes emerge in how refunds are managed: Ease, Speed and Communication.

1. Returns Ease

Store returns offer a distinct advantage over pure-play online retailers. 38% of survey respondents say they explicitly prefer returning an online purchase to a nearby store whenever possible. Nearly half (47%) of shoppers say that it’s easier to return to a store, source: (Narvar). Shoppers cite two key advantages to returning items to stores: (i) they get immediate credit for their return and (ii) they can shop for other items while they are in the store.  This point was behind Kohls recent announcement to expand its Amazon returns policy. The returns program is simple: Amazon customers can drop off their returns for free at Kohl’s. The Kohls store handles packaging and logistics and benefits Kohls in increased foot traffic.

2. Returns Speed

  • 72% of online customers expect a refund credit within 5 days of returning merchandise according to a 2016 Insight study of 4,722 online shoppers across 4,500 e-commerce sites
  • 88% of customers would limit or stop shopping with a merchant that took too long to credit the refund according to the same study.

Take out: the speed and means of the handling a Return is important.

3. Returns Communication

75% of Amazon buyers considered their returns to be easy vs 65% of non-Amazon digital buyers – despite Amazon returns taking more effort. How is this possible? A key study found that communicating with your customers trumped ease of return in terms of generating customer satisfaction (June 2017 study by Narvar surveying 677 digital buyers). Here are the details:

  • more effort is required by Amazon shoppers to make returns than customers on other sites, specifically in regard to printing out a return label (66% vs. 33%) and having to contact a retailer for return authorization (35% vs. 27%).
  • however, Amazon shoppers were more informed about when a refund would be processed (39% vs. 21%) and
  • were also updated more on the status of their returned package (28% vs. 14%).
  • this resulted in Amazon shoppers being on average happier and more satisfied.

Key take out:

  • Communication is probably your lowest cost way of improving your customers return experience, which will flow on to improved repeat business.

Evaluate your Return Policy

Here are four questions to evaluate your current Returns Policy:

  1. The policy
    1. Is it simple and short
    2. Does it use a customer-friendly tone to turn a potential negative into a positive
    3. Do you use plain language and avoid legalese
    4. Do you differentiate between returns and exchanges
  2. Clarity, do you specify:
    1. terms on condition of merchandise
    2. terms on condition of labels and packaging
    3. a maximum time frame for return
    4. terms on sale items
  3. Access and support
    1. Is the return link on the home page, plus in shopping cart and warranty areas (to reduce cart abandonment)
    2. Is the link within website sections, such as:
      1. Shipping Information
      2. Terms and Conditions
      3. Policy
      4. Customer Service and
      5. Stand-alone Returns section
    3. Do you provide FAQs that address the most common returns questions
    4. Did you include a phone number and/or click to chat
    5. Is your policy in the main languages of your customers, e.g., in the USA, does your target market prefer English or Spanish?
  4. Hassle Free
    1. Can you offer returns via a physical location (e.g., in-store)
    2. Once a customer starts a return, how hassle free is the process? Think communication, speed and ease. If you can only manage one, the data indicates communication is best to get right first.

Summary

Returns are a key element in successful e-commerce. Returns policy is an often overlooked tool in boosting conversions on Ecommerce stores. Ensure your approach to Returns receives the attention it deserves.

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