No one looks forward to customers returning merchandise. Every return request translates to lost revenue, plus the added administrative fees associated with recovering and restocking the items (assuming they’re still in resalable condition).
All totaled, returns have a mind-boggling $351 billion impact on the US retail market every single year. The problem affects every consumer-facing business, but the cost is especially profound for online sellers. While consumers will eventually return roughly 9% of all goods purchased from brick-and-mortar stores, the return rate for online purchases is nearly one in three!
Returns clearly represent a major drain on revenue and growth potential. That said, a return could be an opportunity if you have the right policies and strategies in place to leverage it…not to mention that there are far worse possibilities out there.
The Worst Return Beats the Best Chargeback
Yes, returns will cost you sales revenue. However, let’s compare returns to another potential payment reversal: the chargeback.
If a customer uses a chargeback to reverse a transaction, you still lose sales revenue just as you would with a return. You will also lose the merchandise and any potential profit from reselling the item later, as well as chargeback fees imposed by your acquirer to cover administration costs.
Even worse, each chargeback counts against your monthly chargeback-to-transaction ratio. If your ratio starts creeping toward that industry-established threshold of 1% of transactions, your acquirer might freeze your merchant account, or even cut you off entirely, making it impossible to accept cards. If you can’t accept credit or debit cards, your business is dead in the water.
Here’s the truth: customers will find a way to get their money back if they want it, one way or another. If they can’t get a standard refund, or they feel the process is too demanding or time-consuming, they will often use chargebacks as a shortcut—a process known as “friendly fraud.”
This is a major problem in the industry, as roughly 8 out of 10 customers admit to filing a chargeback out of convenience, rather than need. They believe that the return process will be cumbersome and annoying, or that they won’t be able to work with your customer service. They jump straight to a chargeback because they think it’s the easiest way. That’s not the case, of course; the chargeback process involves a lot of back-and-forth litigation, meaning it could be up to six months before the issue is finally resolved.
It’s not hard to disincentivize this form of friendly fraud, you just need to convince customers that going through the appropriate channel is the easiest option.
Better Practices, Better Customer Relations
You might remember that there was an uproar last year among Amazon Marketplace sellers. The eCommerce giant announced it would be updating its return policy, forcing third-parties on the platform to adopt Amazon’s method of automatically-authorizing returns. Sellers predicted a doomsday scenario, saying it would destroy their business and collapse the entire Amazon Marketplace environment.
Fast-forward a year and—to no one’s real surprise—third-party sellers are still thriving on Amazon.
It’s true that the new return policy placed added responsibility and much higher expectations on third-party sellers. But, isn’t that something third-party sellers should have been interested in doing all along?
Here’s the honest truth: making return policies as customer-friendly as possible will help you in the long run. Better policies will help retrain customer behavior, disincentivizing consumers from thinking of chargebacks as an “easy out” compared to merchant returns. Returns are not ideal, but having a solid policy can actually protect your business against chargebacks.
Yes, it’s possible to craft rules that are fluid and customer-friendly, while still reducing your risk of return fraud. But what does that entail?
10 Tips to Optimize Your Return Process
Here are some of the most important points to keep in mind when determining whether you’ve got a good process in place:
#1. Prevent Returns Before the Sale
Start by making sure that customer know what they’re buying before checkout. Review your product descriptions to see whether they accurately reflect the product. This includes images; do you have multiple, close-up images of the product from different angles?
#2. Be Flexible
I’m not saying that you should let every customer get a refund, even months after their eligibility ran out. Being leniency can prevent chargebacks, as well as build positive brand equity and customer loyalty.
#3. Explain the Options
You can’t leave any ambiguities in the policy. Let customers know whether they can make a return for cash, exchange, or store credit, how long they have to complete a return, where they should print labels or address their return items…any vagueness is an invitation to file a chargeback.
#4. Clearly Note Exceptions to the Rules
If you list certain goods as “all sales final,” be absolutely certain your customers are aware of that before completing a purchase. Nearly 2/3 of customers won’t complete a purchase if they can’t return the item, so you’re running a much higher friendly fraud risk.
#5. Don’t Complicate Cancellations
If you offer services based on continuity billing, there’s one key phrase to keep in mind: “no strings attached.” Give customers the ability to terminate service on their own terms.
#6. Make it Obvious
Provide links to your return policy on every page and ask customers to verify that they’ve read the policy before completing the checkout process. Don’t worry, this won’t encourage customers to seek a refund when they otherwise wouldn’t have.
#7. Offer Free Return Shipping
Contemporary consumers now expect free return shipping as a condition of purchasing goods online. If customers are required to pay to ship something back, they’re much more likely to call their bank, claiming that the item wasn’t as it was described, and call it a day.
#8. Invest in Your Staff
Your staff are your first line of service, so be sure to train them effectively and update your team on any new policy changes. Also, don’t forget to ensure that they’re happy and engaged in their work; dissatisfied customer service reps can easily drive shoppers away from official channels.
#9. Pay Attention to Feedback
Don’t just write it off when customers raise concerns. Instead, see what they have to say and explore what could have been done differently to improve their experience. Then, use that information to refine and improve processes in the future.
#10. Make Returns an Opportunity
One tactic I always recommend is to incentivize subsequent purchases. For example, offer a 10-20% bonus on returns if the customer will take store credit instead of cash. You’re taking what would have been a revenue loss and essentially recovering the sale for little extra effort.
As I said before: nobody wants a return, but a return is far from the worst that can happen. Don’t treat your return process as an unfortunate afterthought; instead, embrace returns as one of the most effective chargeback deterrents you can have.
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