July 21, 2008
Return Optimization
By Tom Ryan
With fraudulent returns totaling $15.5 billion annually, many retailers are implementing stricter policies, often at the expense of alienating good customers. But Tom Rittman, vice president of marketing, The Retail Equation, said retailers are increasingly pursuing “return optimization” solutions, which not only seeks to lower fraudulent returns but also to enhance the return experience to drive incremental revenues.
Writing for RIS News, Mr. Rittman said customers dislike two aspects of the return process: 1) Overly strict return policies, and 2) the feeling that return policies are subjective and at the whim of the store employee.
To remove these frustrations for consumers, Mr. Rittman said retailers are using software to gain access to a customer’s transaction history, return history, and buying preferences. This helps determines whether or not the return is valid, consequently simplifying and objectifying the decision-making process.
But the second part of “return optimization” involves offering incentives following legitimate returns that can drive customer loyalty and possibly sales. Typically, these incentives are based on predictive behavior and retailer-specific business objectives, according Mr. Rittman.
“Shoppers who are already in the store making returns are encouraged to stay, shop and spend the money they just received back from the return,” wrote Mr. Rittman.
Not surprisingly, Retail Equation offers both solutions. Mr. Rittman claimed retailers using Verify-1, a solution for verifying fraudulent returns, achieve a five to 12 percent overall reduction in returns without negatively affecting customer service. Retailers using Retail Equation’s Return Rewards solution, which customizes a coupon for individuals based on their spending and return habits, have experienced an incremental sales increases of more than 1 percent.
Mr. Rittman believes the weakening economy will likely increase returns from cash-squeezed consumers but also makes chasing incremental sales in areas such as returns more important.
“As consumers purchase fewer and fewer items during difficult times, every transaction – be it purchase or return – becomes increasingly important to retailers,” wrote Mr. Rittman. “And every customer becomes increasingly important, which is why it is critical to embrace return policies that are not only good for retailers’ bottom line, but also those which help retailers further establish relationships with their customers.”
Discussion Question: What do you think of offering incentives to consumers following legitimate returns? What are some challenges of making such “return optimization” solutions work smoothly and effectively at retail?
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A return policy should be private, confidential and secure. If a retailer has a poorly managed return policy, they should better control their product offerings, their stores and their customer service. Many stores, from Nordstrom to Walmart have built their success on a customer return policy that respects their customers instead of treating them as an afterthought. Using purchasing information, without the express consent of a customer, each time it is accessed, is clearly a violation of a customer’s personal privacy, and should not be considered by any retailer, whatever the cost.
A return policy and process are only as effective as the front end personnel assigned to execute it.
While signage and reminders of policy are important (signs at checkout and on the receipt), it is just as important to provide appropriate and effective training to those who are, in effect, “the front line” who implement them.
Systems such as the Verify-1 may be a good addition to a robust return policy/approach as described. Great customer service and programs designed to incentivize customers to “respend” their return dollars may also be appropriate.
It is likely that the old 80/20 rule applies here as well, so it would be important that any policy undertaken not negatively impact the 80% of the customers who are legitimately returning product at the expense of “filtering” out the bad 20%.
In agreement with Charles with diligence and training for the people at the front counter.
Technology tools that can use the credit card number to track back to the customers transaction in the case of lost receipts and/or the use of an “in-store credit” policy for no receipts are both customer friendly and smart in taking care of the business and the customer at the same time.
There are, and have always been, a number of valid reasons for returns even when the initial sale is entirely satisfactory to customers. For example:
There is the overbuying (so as not to run out)that can accompany preparation for entertaining a large gathering. After the party, so long as he has the receipt, why shouldn’t the generous host in a hassle free manner be able to immediately return unopened cases of pop or unused jars of salsa that would likely reach their expiration date in his cupboard long before they could be used up?. Would the store prefer that he initially purchase his party goods in a cautious, miserly fashion resulting in considerably less profit to them?
There is the woman buying a gown to wear to the wedding of her husband’s most important client. Her husband is unable to go shopping with her so she brings two gowns home to model for him and to get his input, knowing that she will return one of the two dresses the next day, and has told the store that she will. Stores need to consider that when she returns one of the $800 dresses, they have not lost an $800 sale. Instead, they gained an $800 sale from the dress she bought there and kept, rather than buying her dress elsewhere.
Many stores’ return policies these days seem to treat each and every customer as a potential fraudster, soliciting unrealistic personal information and requiring a time consuming process. Retailers in this climate simply do not have the luxury of treating their rank and file customers this poorly and it is to their peril that they do not recognize this.
The key to unlocking the Value in Return Transactions rests, it would seem, is in seriously searching for a better process for assuring that the initial sale is totally satisfying to the customer. That would give an incentive to a satisfied customer in that she/he wouldn’t have to traipse back into the store for the bothersome return process, and to the retailer–if it reduced the number of returns. Absent that being the top priority, then why not try to “incentivize” the highest ranking returners?
Something needs to be done when it comes to returns. How do we balance between satisfying the customer and preventing fraud? Educating the customer is the best way to cover all your basis. Having huge return policy signs is all fine and dandy, but I really believe it is up to the sales staff to inform the customer on proper return procedures. This could be as simple as a friendly ‘don’t loose your receipt! You’ll need it to make a refund’ at the checkout. We want our customers to be aware of what they can and can’t do and that there is no surprises along the way.
Making customers aware will also help in preventing fraud. If the store and staff are ‘refund aware’ then fraudsters are less likely to prey upon them. So all told, its really good customer service that prevents refunds and helps incremental sales.
Online stores with bricks-and-mortar locations often benefit when their web customers make returns to the stores. The returners make impulse purchases during their visits. Target has their returns counter at the front of most locations. Would their sales increase if the counter was at the rear of the store, generating more impulse purchases? Or would the fraudulent returns rise so much that the sales increase wouldn’t be profitable?
Customer service is king especially in today’s market. Retailers must find ways to deal with issues and also keep their best customers passionate about their stores. I think this be addressed best at the local and regional levels.
Well executed return policies can build customer loyalty by keeping the procedure clear and consistent. Some retailers are missing the point by keeping the information almost hidden on the back of the store receipt.
A few electronics retailers are implementing a restocking charge of 10% or more to discourage returns. In some cases, this charge came as a surprise to the shopper, often parents purchasing items for students. At a minimum, the return policy information should be more prominent in the store information and advised during purchase. It is also risky when competitors have taken a more proactive approach to creating a positive return experience.
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A return policy should be private, confidential and secure. If a retailer has a poorly managed return policy, they should better control their product offerings, their stores and their customer service. Many stores, from Nordstrom to Walmart have built their success on a customer return policy that respects their customers instead of treating them as an afterthought. Using purchasing information, without the express consent of a customer, each time it is accessed, is clearly a violation of a customer’s personal privacy, and should not be considered by any retailer, whatever the cost.
A return policy and process are only as effective as the front end personnel assigned to execute it.
While signage and reminders of policy are important (signs at checkout and on the receipt), it is just as important to provide appropriate and effective training to those who are, in effect, “the front line” who implement them.
Systems such as the Verify-1 may be a good addition to a robust return policy/approach as described. Great customer service and programs designed to incentivize customers to “respend” their return dollars may also be appropriate.
It is likely that the old 80/20 rule applies here as well, so it would be important that any policy undertaken not negatively impact the 80% of the customers who are legitimately returning product at the expense of “filtering” out the bad 20%.
In agreement with Charles with diligence and training for the people at the front counter.
Technology tools that can use the credit card number to track back to the customers transaction in the case of lost receipts and/or the use of an “in-store credit” policy for no receipts are both customer friendly and smart in taking care of the business and the customer at the same time.
There are, and have always been, a number of valid reasons for returns even when the initial sale is entirely satisfactory to customers. For example:
There is the overbuying (so as not to run out)that can accompany preparation for entertaining a large gathering. After the party, so long as he has the receipt, why shouldn’t the generous host in a hassle free manner be able to immediately return unopened cases of pop or unused jars of salsa that would likely reach their expiration date in his cupboard long before they could be used up?. Would the store prefer that he initially purchase his party goods in a cautious, miserly fashion resulting in considerably less profit to them?
There is the woman buying a gown to wear to the wedding of her husband’s most important client. Her husband is unable to go shopping with her so she brings two gowns home to model for him and to get his input, knowing that she will return one of the two dresses the next day, and has told the store that she will. Stores need to consider that when she returns one of the $800 dresses, they have not lost an $800 sale. Instead, they gained an $800 sale from the dress she bought there and kept, rather than buying her dress elsewhere.
Many stores’ return policies these days seem to treat each and every customer as a potential fraudster, soliciting unrealistic personal information and requiring a time consuming process. Retailers in this climate simply do not have the luxury of treating their rank and file customers this poorly and it is to their peril that they do not recognize this.
The key to unlocking the Value in Return Transactions rests, it would seem, is in seriously searching for a better process for assuring that the initial sale is totally satisfying to the customer. That would give an incentive to a satisfied customer in that she/he wouldn’t have to traipse back into the store for the bothersome return process, and to the retailer–if it reduced the number of returns. Absent that being the top priority, then why not try to “incentivize” the highest ranking returners?
Something needs to be done when it comes to returns. How do we balance between satisfying the customer and preventing fraud? Educating the customer is the best way to cover all your basis. Having huge return policy signs is all fine and dandy, but I really believe it is up to the sales staff to inform the customer on proper return procedures. This could be as simple as a friendly ‘don’t loose your receipt! You’ll need it to make a refund’ at the checkout. We want our customers to be aware of what they can and can’t do and that there is no surprises along the way.
Making customers aware will also help in preventing fraud. If the store and staff are ‘refund aware’ then fraudsters are less likely to prey upon them. So all told, its really good customer service that prevents refunds and helps incremental sales.
Online stores with bricks-and-mortar locations often benefit when their web customers make returns to the stores. The returners make impulse purchases during their visits. Target has their returns counter at the front of most locations. Would their sales increase if the counter was at the rear of the store, generating more impulse purchases? Or would the fraudulent returns rise so much that the sales increase wouldn’t be profitable?
Customer service is king especially in today’s market. Retailers must find ways to deal with issues and also keep their best customers passionate about their stores. I think this be addressed best at the local and regional levels.
Well executed return policies can build customer loyalty by keeping the procedure clear and consistent. Some retailers are missing the point by keeping the information almost hidden on the back of the store receipt.
A few electronics retailers are implementing a restocking charge of 10% or more to discourage returns. In some cases, this charge came as a surprise to the shopper, often parents purchasing items for students. At a minimum, the return policy information should be more prominent in the store information and advised during purchase. It is also risky when competitors have taken a more proactive approach to creating a positive return experience.