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Rethinking retail returns: How to turn them into a loyalty-building advantage

July 2, 2024 | Published by Faire

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a smiling shopkeeper talks with a customer at the cash register
a smiling shopkeeper talks with a customer at the cash register

Returns are frustrating, and for good reason: They decrease revenue, increase costs, and signify unsatisfied shoppers. In 2023, National Retail Federation Data shows that consumers returned 14.5% of purchases, costing retailers $743 billion in revenue. Returns also have a substantial sustainability impact when you consider shipping costs and the potential waste of the actual products.

But returns can also provide a unique opportunity for customer feedback and engagement. When handled thoughtfully, they can enhance your reputation for customer service and act as a springboard for growth. This might mean rethinking your return policy altogether. Consider that 88% of U.S. consumers say that they stopped shopping with a retailer because of a paid return policy and that 49% are less loyal to such brands. What’s more, 72% of shoppers increase their loyalty to retailers who offer free returns. 

By getting curious about the reasons behind your returns and evaluating your policy, you can turn this formidable challenge into a strategic advantage.

Analyze and clearly explain your policy

When it comes to maintaining and increasing loyalty, shoppers prioritize a free returns policy (72%), a fast return service (66%), an extended returns deadline (64%), and a sustainable returns process (55%). So if you’re experiencing an influx of returns, don’t alienate your customers by implementing fast fixes like increasing shipping costs and shortening return windows.  

Instead, take a look at your policy and make sure you’ve set clear guidelines that protect your profitability while still being fair to customers. Transparent communication can prevent misunderstandings and reduce the number of ineligible returns. Here are some best practices:

  1. Define a reasonable time frame for customers to return eligible products. This is dependent on your products but can range from 30 days to two months. (Stay conscientious of depreciation; if you sell electronics or seasonal items, they will lose value faster.)
  2. Specify the condition that items must be returned in (tags on, original packaging, etc.). 
  3. Offer alternatives to returns, such as exchanges or store credit. This will keep the revenue within your business while still accommodating customers.
  4. Consider offering tiered return options, such as free returns for store credit, and charging a small fee for cash refunds to offset processing costs.
  5. Streamline your returns logistics by partnering with local businesses for return drop-offs or by using a single carrier with a bulk shipping rate.
  6. Use a transparent restocking fee to discourage frivolous returns and recover some costs without deterring customers. 

To reduce customer anxiety around purchases, make sure the steps to make a return are simple, and clearly outline your policy on your site and, if applicable, in your store. 

Start a two-way dialogue with customers 

No matter how carefully you plan, you’re going to have returns. Taking the time to understand the reason behind each one is important. Consider returns as feedback; they can be a valuable source of insight into product performance and customer preferences. By addressing the rationale behind returns, you can improve product offerings, reduce future returns, and ultimately strengthen your brand’s reputation and customer satisfaction.

For example, to avoid returns in the first place, 36% of shoppers would like to see more visuals of the product. It can be especially helpful to see products at scale, so make sure you have pictures of each item in context. If it’s a candle, photograph it next to a bedside table and lamp; if it’s an item of clothing, make sure you have it on models of varying (and realistic) sizes and specify their height. Consider adding a short video.

Reach out to customers to understand their concerns and offer tailored solutions, such as an exchange or future discount. Consider implementing a loyalty program that rewards them for exchanges rather than refunds, incentivizing them to stay within your brand ecosystem. 

Lean into sustainability

If you have a brick-and-mortar store, offering free in-store returns brings more customers into your physical retail space, potentially leading to additional purchases. It’s also a sustainable option that reduces shipping demands and the associated carbon emissions. Often, consumers aren’t even aware of the toll returns take when it comes to packaging and plastic waste, so explain your Earth-friendly reasoning in your clearly defined policy. After all, 94% of merchants say customers are concerned about sustainability, and 55% of shoppers say sustainable returns will increase loyalty. If you do receive a returned item that can’t be reshelved, carefully consider next steps and think of new angles. If it’s accurate and applicable, you can mark the item as “refurbished” and offer it at a slight discount for eco-conscious shoppers. 

Cross-sell during the product returns process

Whether you offer customers the option to exchange their return online or bring it into your store, you can take advantage of the “refund effect.” This phenomenon occurs because shoppers are more likely to use refunded money for spending rather than “other” money (even though, technically, it’s all coming from the same place). The psychological loss of refunded money is notably less than when using “unspent” money. To tap into this mindset, you could offer discounts during the returns process that encourage the customer to spend their refund at your store sooner rather than later. This is another chance to delight customers while they’re in your store and make a purchase that might suit them better. 

Using your return policies to prioritize customers

A clear, customer-friendly return policy is a powerful tool for nurturing loyalty and trust without unnecessary costs. Demonstrating that you value customer satisfaction above all encourages customers to keep shopping with you, even if their initial purchase didn’t work out. 

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