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Tips to Make Your Online Returns Policy a Competitive Advantage
by Jordan Colletta, Vice President of eCommerce, UPS

With the holidays rapidly approaching and the price of gasoline continuing to remain high, you can expect many Americans to leave the family car in the garage this year and shop online. That likely means a boost in e-commerce, and a spotlight squarely on a topic many businesses would prefer to avoid -- online returns.

How much thought has your company given its returns policy? If the answer is “not very much,” you may be missing a golden opportunity.

UPS recently commissioned Forrester Consulting to take a look at online returns, and what they found may surprise you. In a nutshell: returns policies are a bigger factor in consumers’ online buying decisions than most retailers realize. Businesses who make it easier and less expensive for customers to return their products derive an advantage over competitors – and are likely to, in the long term, see increases in sales, customer loyalty, and incremental revenue.

Here are four top tips, based on Forrester’s study, to help turn your online returns policy into a competitive weapon.

Top Four Returns Tips for E-tailers:

1. A liberal returns policy can enhance your bottom-line. Don’t view a generous returns policy as a “margin-drain” on the bottom line. Forrester found that a liberal returns policy can enhance the bottom line in the long-term. And remember, customers that are most likely to return items also tend to be the most active online consumers, so your returns policy potentially affects your best customers.

2. Understand that the key reasons for returns are often outside your customer’s control. Forrester found that retailers, not customers, are frequently responsible for customer returns. To reduce unnecessary returns, make sure you send the customer the correct item ordered and that the item is accurately represented on your web site.

3. Forrester concluded one of the most important things you can do is to match your returns policy to your business. See the “four quadrants” illustration below.

For example, if you sell non-fragile, light items such as women’s apparel or home soft goods, you have a relatively low cost for accepting returns, but your customers have a relatively high chance of receiving an item that doesn’t fit or otherwise doesn’t match their expectations. You should take care to ensure that products are being accurately depicted online – with Web site features like customer reviews, alternate views, and detailed and accurate sizing information. For those customers who still elect to return an item, Forrester recommends prepaid return labels or subsidized returns. You might also consider giving the customer a credit for the cost of the return redeemable on your site.

If, on the other hand, you sell larger, fragile items like televisions or computer hardware, you have a higher cost to accept returns but a much lower risk of customers receiving something
they didn’t expect. Consider other remedies to please the customer to motivate them to keep the item rather than returning it. One option may be providing an accessory, like a wireless router for a computer purchase, or a gift certificate if they keep the product rather than return it. If you have bricks-and-mortar locations you can provide a level of confidence by offering in-store returns or pickup/delivery programs. And if you have a sophisticated customer database, think about offering more generous returns policies for your best customers.

4. Whatever your program, make sure to communicate it to your customers – both in the “help” section of your Web site and on product detail pages. This is particularly important if you sell expensive items or items that are difficult to ship, and/or items that are challenging to render accurately online.

Source: Forrester Customer Research, 2008, UPS Online Retail Return Study

Related Forrester Research Report

Crafting a Returns Policy that Creates a Competitive Advantage Online
Summary of a commissioned study conducted by Forrester Consulting on behalf of UPS

As the rate of growth in the e-commerce industry slows, e-commerce managers look to innovative initiatives to drive sales and capture market share. Consumer electronics continues to be among the most popular categories of products bought online, and while sales and specials targeted to first-time customers tend to be popular incentives, more electronics retailers also look to mine their customer databases and segment their messaging to drive incremental volume from core customers.

Relatively few electronics retailers, however, look to their reverse logistics/returns process as a means to grow sales or increase customer loyalty, even though the inability to touch or feel items is a core factor that inhibits online sales.

The Retailer Perspective
Few retailers are eager to engage in marketing tactics or programs that affect the returns process. While a select few companies have made returns a core, strategic part of their marketing strategy, most electronics retailers tend to view overly-generous and overt return policies as a “margin-drain” and believe their efforts are best spent engaging in initiatives to help avert returns altogether.

Few online retailers believe that a liberal returns policy can drive incremental sales or loyalty in the long-term. Even those retailers employing more liberal returns policies have done so reluctantly. Such companies often play in competitive landscapes where consumer expectations about returns are frequently set by a larger, liberal player looking to capture market share at the expense of margin/profitability.

The Consumer Perspective
While core online shoppers do appreciate the convenience of the web – especially in the wake of high gas prices impacting visits to brick and mortar retailers – they also recognize that there are risks associated with purchasing products via the Internet. The process of returning an item purchased online tends to be viewed as a hassle and in many cases causes buyers to reduce their online spend levels altogether.

An inflexible or stringent returns policy can be an obstacle to growth, particularly as those consumers most likely to return items also tend to be the most active online buyers. In fact, among consumers who had purchased items online within the last six months and either returned or intended to return some of those items, the study found the following:

• 81 percent agreed with the statement “If an online retailer makes it easier for me to return a product, I am more likely to buy from that retailer.”
• 81 percent agreed with the statement “I am more loyal to retailers that have generous return policies (e.g. free return shipping, ability to return any time for any reason).”
• 73 percent agreed with the statement “I am less likely to buy in the future from an online retailer where the returns process is a hassle.”

More specifically, of customers who had purchased electronics (computers, cameras/camcorders, electronics and appliances) in the past six months, 72 percent were likely to shop an electronics retailer with a flexible returns policy, while only 29 percent were likely to shop one with an inflexible policy. Seventy-three percent would recommend an electronics retailer with a flexible policy to others; only 24 percent would recommend one with an inflexible policy.

This led Forrester Consulting to conclude that online retailers with generous policies, in the long term, have the ability to grow sales, generate loyalty, and drive incremental revenue for retailers with a web presence.

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