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Managing Returns While Maximizing Profits for E-Commerce

May 11th, 2018

We’ve all seen an infomercial that promises to let you return an item if you’re at all unhappy with your purchase. “If for any reason you’re no longer satisfied with your Snuggie, simply return it for a full refund. No questions asked.”

Many e-commerce return policies are based on this philosophy of risk-reversal. If you take away the risk of purchasing with a generously crafted return policy, people will be more likely to buy … But wait there’s more!

There’s much more to this story, as uncovered by a recent report from researchers at the University of Texas at Arlington (UTA). Published in The Journal of Retailing, the report looks at the effects of return policy leniency on purchases and returns in retail.

While the effects of return policy on retail sales are fairly well known, less is understood about the factors that influence people to return — or not to return — a product they’ve purchased. This report answers important questions for retailers about how they can use their return policy to achieve better business results.

The 5 Essential Elements of Return Rates

What are the ways to minimize returns and increase online sales? The report looked at the five most important elements of return policies and how each affects the rate of returns and overall profitability. These five elements are:

1) Time Leniency
This is the time period during in which a return is accepted by the retailer. Is it a 30-day return policy, 60-day return policy?

2) Money Leniency
This is how much money the retailer refunds for a return. Do you provide a 100 percent money-back guarantee, charge a restocking fee, etc.

3) Effort Leniency
The amount of hassle for the consumer to complete a return. Does it involve filling out a form or presenting identification to complete a return?

4) Scope Leniency
These are the products covered by the return policy. Are sale items included?

5) Exchange Leniency
What consumers get for returning the good. Are they given cash, store credit or replacement goods?
Report Results: Ways to Reduce Returns & Increase Sales
If you want to increase sales, the study shows that hassle-free returns (effort leniency) and money-back guarantees (money leniency) are the best incentives for buyers.
To decrease the dreaded returns, your policies should decrease the return options (exchange leniency) and increase the return periods (time leniency). Interestingly, people are actually less likely to return a product they’ve had for a longer period of time. It’s been theorized that this phenomena occurs because people often become more attached to items the longer they have them in their possession. That translates to longer return policies actually working to lower return rates and improve profitability.

 

Crafting the Right Return Policy
How will you use the findings to help reduce returns? As the report shows, crafting the right return policy can help drive more online sales for your e-commerce business. It can also help you avoid more returns in the mail. Look at each of the five return policy dimensions against your own policy to find new opportunities to grow and become more profitable.

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