Digital Returns Management Begins in the Online Shop
26. July 2017
Minimizing Returns Rate
Returns management is an important part of digital commerce. In the fashion industry, for example, returns are not uncommon. With a return rate of up to 50%*, this means that almost half of orders will be sent back in whole or in part. Even without knowing exact figures, we can still see that this results in huge costs. So it is no wonder that e-commerce managers go to great efforts to reduce the return rate. In this article, we show you how this can be done even before the purchase, as well as providing further useful information on this topic.
2 Main Reasons for Returns
There are a number of reasons why a customer would choose to return an order, which can be down to the customer, retailer or shipping provider.
Customer-Related Reasons for Returns
Customers are probably the biggest risk factor contributing to returns in an online shop. A study by ibi Research showed that 40% of online customers already expected to return some of the goods when placing the order. The highest return rate was seen in the clothing sector, with 25%. Similarly, a research from Bitkom revealed that every tenth online order is sent back, especially in the 14 to 29 age category. A consumer survey by PwC Germany showed that almost a third of online shoppers sometimes place orders and simply send them straight back. Consequently, there is an immense burden on returns management in the online shop. A customer’s reasons for returns are quite clear:
- 62%: Item was not suitable
- 39%: I did not like the item
- 30%: Item defective or damaged
- 30%: Item did not match the description
- 20%: Ordered multiple versions to choose from
- 7%: Wrong order
- 5%: Delivery time too long
- 2%: Better offer in a different online shop
- 2%: Other
Retailer-Related Reasons for Returns
The reasons for complicated returns management in an online shop can also be down to the retailer themselves. Many retailers will offer short delivery times to encourage customers to buy, and when the actual delivery takes longer, the customers start to lose trust. Many send the goods back as soon as possible simply out of anger. It follows that accurate information on the delivery time improves returns management in the online shop.
Retailers who deliver their goods in contaminated packaging increase the return rate. The same applies for poorly packaged goods, which lead the customer to doubt the seriousness of the dealer. Introducing after-sales support in an online shop establishes effective returns management. Customers who are not immediately satisfied with a product can simply phone up and questions can be answered in only a few minutes.
Online shops without after-sales support run the risk that the customer will exercise their right of revocation. Retailers who use a rating system benefit from an exchange of opinions between their customers. The reviews of individual products help the customer to buy the right product in the first place. Inaccurate product descriptions or incorrect product images indicate an urgent need to improve return management in the online shop. The most common retailer-related reasons for returns at a glance:
- Incorrect information on the delivery time
- Poorly packaged goods
- Lack of after-sales support
- Incorrect product description
- Lack of quality assurance
- No rating system
The number of retailer-related returns can be reduced using relatively simple measures. It is therefore all the more important that online shops consider this as soon as possible.
Shipping-Related Reasons for Returns
If the shipping provider makes a mistake, the customer does not receive their goods. Occasionally, the goods accidentally remain at the distribution center. Items may be dropped accidentally and goods damaged by employees. Trivial circumstances, such as missing delivery notifications, can sometimes also be the reason for a return. The reasons for returns to an online shop caused by the shipping provider at a glance:
- Accidental damage
- Goods not delivered
- Delivery notification lost
What Does a Return Actually Involve?
The sequence of returns management in an online shop is always the same. A customer buys a product but decides not to keep it. They exercise their right of revocation and send the product back. Then, the store operator transfers the money back or sends the customer another product. Here, the store operator may ask that the customer cover the shipping costs, but personnel and process costs are covered by the operator themselves. Once the goods have been received in the online shop, they must be examined for any damage. Finally, the goods are either repackaged and returned to the goods cycle, or they are discarded.
The Costs of an Online Shop Return
Over 30% of shop owners do not know how much the average return costs. The returns management of an online shop may be a huge cost factor, but it is comparatively easy to monitor. Each free online shop return costs the store operator on average around $40*, which should be reduced with the introduction of returns management. This is because in addition to the
- Postage and packaging costs, there are also
- The costs of processing and re-entering items as well as
- Costs resulting from the loss in value or, in the worst cases,
- Costs of destruction if the product cannot be resold. There are also
- Missed sales and
- Capital tied up due to time differences.
An online shop must rely on other sales in order to cover the $40. So in order to be successful in the long term, the e-commerce manager must use efficient returns management to reduce costs and thus become more profitable in this area. More than 44% of online shoppers also claim that they have never taken advantage of their right of return in an online shop. Online shops that draw on this increase their sales and are able to save on personnel and process costs. Return costs can be reduced in a number of different ways within the three fields of returns management. These areas are preventing returns, processing returns and checking returns.
Preventing Returns in an Online Shop
The most effective and most useful step in returns management in online trading is to prevent returns, as this reduces the cost to both the store operator (processing returns) and the customer (sending the order back).
Online store returns can be avoided when the customer orders the right product to suit their requirements. But this is easier said than done — because what is the right product for the customer? This is why offering advice in an online shop is an essential part of preventing incorrect purchases or purchasing multiple variations. If the customer does not receive any advice, there is a high probability that they will send the item back because it does not fit or because the quality is not right. These are two of the most common reasons for returns in the fashion sector.
Presenting the Product When Requirements Are Known
Detailed descriptions, multiple photos or even a short video will all help customers in their purchase decision when they know what they need. asos.com includes catwalk videos, so customers can see the fit of the selected garment. In these cases, the customer knows what they need — it is simply about certain factors, such as the color, material or price. This is why it is so important for an e-commerce manager to present a product comprehensively.
Determining Unknown Requirements
Since the customer often does not know their exact requirements for a specific product, it is important to offer an advice service in order to determine the requirements and enable the correct purchasing decision. Digital software tools use Guided Selling to ensure the right purchasing decision. An intuitive product advisor uses various criteria to find out what the customer wants and recommends suitable products based on their answers — just like in a physical store. For example, if a customer wants to buy a bike, a salesperson asks for what sort of activities the bike is going to be used. This enables them to determine the customer’s requirement and make a suitable recommendation. Using the built-in Reasonings (justification of the purchase recommendation depending on the individual user data), the customer can compare the different product recommendations and thus select the desired article. Incorrect purchases and selection orders are reduced and, consequently, the return rate. The Lufthansa Worldshop uses a digital luggage advisor to sell customers the correct luggage.
Make Returns Processing As Efficient As Possible
Despite the effective prevention measures in returns management, it is not possible to prevent all returns. It is therefore important to make returns processing as efficient as possible in order to reduce the associated costs. This includes:
- Package notifications
- Process automation
- Minimization of the error rate and the processing time
Returns processing can also be improved when the returns process is simplified for the customer. If the customer completes the returns slip properly and sends the package at an early stage (i.e., if the return stickers and suitable adhesive tape are included in the package, as is the case with Outfittery), the return can be processed faster. While this does not reduce the return rate, it does reduce the associated costs.
Carry Out Comprehensive Returns Checks
Many of the returns management measures are based on ongoing monitoring of all processes, i.e.:
- What are the reasons for the return? If a product is constantly returned because the size is too small, the content manager should be made aware that the product description may need to be updated.
- Are the returns processed in a timely manner? If not, you may need to take on more staff or consider subcontracting. Although this leads to higher personnel costs, the benefits can be seen across the company due to the reduced processing times.
Products with a high return rate can also be removed from the product range and replaced with other products. Continuous controls help with return prevention and returns processing and are thus essential to effectively reducing returns.
Our Conclusion: Take Proactive Measures
Because of the high proportion of returns, the return rate in online trading is one of the key components in ensuring the success of an online shop. In order to improve costs, returns management measures focus not only on more efficient returns processing, but also on proactive measures. Guided Selling is especially helpful where requirements are not known, as it helps determine the requirements and enables the correct purchasing decision. When the cost of each return is reduced and ongoing checks are in place, an online shop will see vast improvements and therefore become more profitable.
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