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Reduce returns, maintain high customer satisfaction: Advice for online retailers

Customer returns in e-commerce cause three things: extra work, extra costs, and extra environmental impact. Thus, it is all the more important to keep the return rate low by adhering to certain best practices for effective and proactive returns management. We compiled the best ways to achieve this, what a “normal” return rate looks like and how you can calculate and optimize your own one.

Online retail: Returns drive purchasing decisions

In a brick-and-mortar store, you are free to try on that pair of shoes, or to test the technical features of a new appliance. However, many people prefer the experience of shopping online as it’s more convenient and the number of options is far larger. The downside? Regrettable purchases can be difficult to avoid: Returns and returns management are crucial aspects of e-commerce since the day the first item was added to a virtual shopping cart.

On top of that, customers do appreciate easy, consumer-friendly and ideally cost-free return options. How well a return was handled influences future purchasing behavior and shop ratings. Proper returns management has been shown to increase customer loyalty and recommendation rates.

How high are the return rates in reality?

When it comes to returns, not all online shops are affected to the same extent; the number of returns heavily depends on the industry in question. This should not come as a surprise. In fashion for example, ill-fitting items are only one part of the story. Many people order multiple pants, shoes or jackets to try them on – as long as returns are free of charge, customers do not incur any additional costs for sending items back. That may be convenient but it leads to a relatively high return rate. By contrast, those who sell pet food, food supplements or other consumer goods online can expect much lower numbers.

Experts from the Returns Management research group at the University of Bamberg have determined industry-specific return rates. In the fashion sector, they can be as high as 50 percent, while they hover at around 10 to 15 percent for consumer electronics. As such, an online fashion retailer would consider a return rate of 30 percent to be a great success. For a pet supply vendor, the same rate of returns would be catastrophic. For them, a value of less than 5 percent would be desirable.

Calculate return rate and evaluate the need for action

Any business activity has its own specific indicators to both quantify success and identify potential entry points for process optimization – key performance indicators (KPIs). We already established that the return rate is how an online retailer can gauge their performance in limiting the number of returns. In terms of returns management, it is commonly considered the most important KPI.

Experts distinguish between three return rates, varying in their relevance across different types of e-commerce operations: the so-called alpha, beta and gamma return rates.

Alpha return rate formula

The alpha rate is the ratio of the total number of parcels sent to the number of parcels returned. First and foremost, this key figure provides insights about the quality of the logistics process, be it protective packaging or delivery accuracy. Naturally, the performance of the involved logistics partners plays a decisive role as far as the alpha rate is concerned.

Alpha return rate in percent = total parcels returned ÷ total parcels shipped x 100

Example: 80 parcels sent and 25 returned results in an alpha return rate of 31.25 %.

Beta return rate formula

For the beta rate, what matters is not the number of parcels but the number of items. A parcel can contain several items, and sometimes only a part of them is getting returned. Therefore, this key performance indicator can give you an idea about the product quality and whether the item description and listed properties in the online shop accurately match customer expectations.

Beta return rate in percent = total items returned ÷ total items shipped x 100

Gamma return rate formula

Finally, the third ratio focuses on the value of the goods. By comparing the value of the shipped goods with the value of the ones that were returned, it is possible to recognize whether high-priced or low-priced goods tend to be returned more – once compared with the beta return rate, that is.

Gamma return rate in percent = value of items returned ÷ value of items shipped x 100

Reduce your return rate with proactive returns management

Delivery to the end customer’s doorstep can make or break the shopping experience. Here at DHL Freight and DHL Group, we are well-aware of the responsibility we hold. As logistics professionals, we do everything we can to ensure that your return rate is as low as can be, by providing high delivery accuracy, delivery speed and safe handling.

An online shop’s own levers for minimizing the number of returns mainly concern the pre-purchase stage, before an item is placed in the shopping cart. The objective is to make sure that the most suitable item is selected – a product that fully meets the customer's needs and therefore offers no reason to return it in the first place.

5 fundamentals for reducing the return rate

Post-return customer survey

Find out why items are being returned – by asking your customers directly, such as by using a survey sheet that they should attach to the parcel, or through an email that is sent out after the returns process. This enables you to establish return patterns for certain products (for example, clothing items from a specific manufacturer might have a poor fit disproportionately often, or there may be frequent quality defects). Based on this valuable knowledge, you can take action in a multitude of ways: Remove items from the range, rewrite descriptions, adjust size charts, etc.

Customer service before shipping

What’s even better is resolving issues before the sale takes place. Make it quick and easy to get in touch with your customer service team so that they can answer questions about the products’ functionality or sizing – be it by a human or via artificial intelligence.

Optimize product descriptions

The better the description, the lower the likelihood of disappointment and returns. Resist the temptation to over-promise – presenting an item in the best possible light is one thing, setting expectations that the product cannot fulfil is another.

Detailed product descriptions and clear images can make all the difference in the world. Allowing people to compare different products can facilitate well-informed purchasing decisions as well. For clothing, provide detailed and easy-to-understand size charts. For many fashion items, a virtual try-on could be a viable option – considering that such a feature is not just useful but also highly entertaining.

If an item can only be used if certain conditions are met (for example, it might require a specific electrical tool or a portafilter espresso machine), embed a video on how to install and use the product directly in the description. Prospective buyers then know in advance what is working for them – and what isn’t.

Strong internal quality control

Even the best description won’t help if an item is defective. Establish meticulous quality control processes so that you can discard damaged or defective products before they are shipped.

Perfect packaging, fast delivery

Once you know that the goods are in perfect condition, it is your job to make sure that this still holds true when the parcel reaches the customer’s hands. If you handle order picking and packing on your own, you should exercise the utmost care at every step of the way. Better safe than sorry! If you are outsourcing your fulfillment on the other hand, these quality standards are to be upheld by your partners. And the same goes for choosing your logistics partner – you need somebody you can rely on.

… and a sixth point

The long-term success of a retail business hinges on customer satisfaction. Understandably, nobody wants to skimp on convenience. That being said, there are indications that returns happen more frequently for purchases with a post-delivery billing as compared to those that were already settled (via direct debit or instant bank transfer, for example) by the time the parcel is shipped. To some extent, this is tied to fewer items being ordered without strong intent but rather to test them out. You should carefully weigh up the potential return rate reduction against the estimated impact on customer happiness and conversion rate.

In a similar fashion, aim to strike the right balance when defining your returns guidelines and barring certain items from returns for justifiable reasons, such as personalized products, clearance items or products without their original packaging. In accordance with legal provisions, you don't have to accept every single return – and as long as you have clear and transparent guidelines, bad reviews can be averted.

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Conclusion: Together, retailers and logistics providers can achieve lower return rates

Saving time and money, reducing the ecological impact: There are plenty of reasons for avoiding returns. Establishing effective returns management practices remains a key challenge for online retailers even though there are proven methods for reducing the rate of returns by a considerable degree. You can count on DHL Freight and DHL Group to be by your side, giving your customers as little reason as possible to ever return items to you.

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7. June 2016 / Reading time: ~ 0 Min.