1 December 2022
5 min read
Treat your returns wisely and they will make you money
In today’s article, we will try to debunk a widely believed myth regarding returns.
For many companies still today, product returns are perceived as inconvenient, profit-eroding, and time-consuming. As a result, efficient product return management is usually ignored and product returns are treated “as just a bitter pill the company is forced to swallow in the company-customer relationship”.
Reverse logistics is costly, there is no denying that. However, only taking a static vision at the transaction level might disregard critical second-order positive effects.
Thanks to the publication of recent studies, a growing share of firms are starting to pay close attention to the benefits of laxer return policies allowing customers to return products more easily. The reason? Despite the company’s handling costs and its revenues lost from refunds, the customer’s ability to return products might have a positive effect on his or her future purchases and actually increase long-term profits.
In “Can product returns make you money? (MIT Sloan Management Review, J. Andrew Petersen and V. Kumar, Spring 2010, Vol. 51 No.3)” we learn quite some interesting facts:
First, the more lenient a product-return policy, the more purchases existing customers are willing to make. And second and maybe more interestingly, the best rate of costumers’ product returns is NOT zero.
So the question: how can returns make you money?
At REVER, we believe that effective returns can be a source of revenue generation.
As individuals, we are risk averse by nature. We prefer avoiding negative news than receiving good ones. Why? Because we have been programmed for survival and thus seek for protection in everything we do. Actually, a trillion dollar industry is built around this concept: insurance.
Metaphorically speaking, product-return policies are the insurance of retail purchases.
Experiencing a moderate level of returns in your company and more importantly, having an effective and efficient lenient product-return policy in place to manage them, is a far more optimal solution than desperately trying to reach 0% returns level.
This follows a simple line of reasoning: when consumers know they can easily return a product it reduces the perceived risk they face during the initial purchasing phase and helps increase customer satisfaction. Studies show that when switching from a strict to a lenient return policy, companies experience increases in average yearly purchases, in average yearly customer profit and in the average number of referrals each customer makes per year. In short, the better the protection offered, the greater the earnings generated.
However, many companies try to fight customers’ returns by creating product-return disincentives, applying product customization that permits returns only when the product is defective, and introducing non-refundable purchase costs. Studies have shown that these are short-sighted practices that, whilst reducing the costs and frequency of product-returns, are not optimal in the long-run.
But let’s be clear on something: in no way should companies that seek to maximize their profits encourage customers to return products. However, being transparent in the way returns are managed, providing customer protection to de-stress the purchasing phase, and generating customer satisfaction to boost word of mouth has proven to be more effective.
At REVER, we are convinced about the power of effective returns.
We believe that when a customer is returning a product, what he or she is actually doing is asking for help. Thus, providing a satisfactory product return creates an additional touch point for building a successful buyer-seller relationship. Providing support and delivering frictionless solutions is an excellent opportunity to both reinforce your customer relationship and build a comparative advantage.
REVER has the mission to help consumers make purchasing decisions in a less risky environment where they feel sheltered. To accomplish our goal, we partner with e-commerces that are willing to deliver the most cutting edge technological solutions to manage returns.