The point of no return? Why returns analysis is essential in 2024

December 15, 2023
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You don’t have to go far to find news about the impact that returns are having on businesses. Or the incredibly negative impact that they have on the environment.

Somewhere between 20-30% of all ecommerce purchases are returned and the annual retail value of returned goods in the US alone is reputedly approaching one trillion dollars.

It’s a sizable challenge, or viewed through another lens it is an enormous opportunity. 

Small improvements in the percentage of items returned has a significant impact on the bottom line. A study by the University of Portsmouth found that one retailer saved £19m by making the right low cost investments.

The time of year when the December self starts to forward tasks to the January self may be fast approaching, but perhaps there is still time to do one simple thing that could have a sizable impact on 2024.

Returns are a great way to link CX to revenue

As CXers we often talk about linking what we do to business metrics and things the business cares about (when was the last time you attended a Customer Experience event where there wasn’t a talk on showing the ROI of CX?). 

Returns represent an incredible opportunity to show the impact that Customer Experience has on business metrics. 

Each return costs the business money. Reducing returns = money saved. 

It’s actually pretty hard to find a more direct link than that.

Furthermore the cost of a return is likely already known (or pretty easy to work out) which makes it a great revenue based metric to impact.

Given the cost of reverse logistics (aka shipping an item back to a retailer), and the low % of items that are resold at full price, initiatives that reduce returns without impacting sales are the very definition of a no brainer. 

So why is returns reduction such a challenge?

Reducing returns is challenging for 2 reasons. 

Firstly, it relies heavily on understanding exactly why items are being returned by customers, before it is possible to take the right actions to reduce them.

Secondly, discouraging returns in the wrong way can have the effect of reducing sales. 

Solving the puzzle means identifying the initiatives that reduce returns (therefore saving the company significant amounts of money) but do not negatively impact sales.

This makes reducing returns a classic customer experience problem. 

The only way to do it effectively is to understand the customer’s perception and what drives their behaviour. It is only with this understanding that you can address how to drive the behavioural change you need, in the customers you want.

To reduce returns you need to know what changes to make 

Rather reassuringly there is literally only one place to begin when it comes to reducing returns. This is your understanding of why items are being returned. 

As with most problems, we begin with what we want to achieve. In this case it is a thorough understanding of exactly why customers choose to return items. 

So the first thing to do is to start with a frank assessment of your current reality - do you actually understand why customers return items or do you just classify returns reasons into buckets?

Here’s the simple thing to do. Take a look at your returns survey. You might own it or it might sit with another team. Either way, take another look at it. 

Is it providing you with rich insight? Does it tell you exactly why people are returning items and what you can do to fix it? Does it allow you to identify returns that are avoidable and returns that are not?

To highlight the difference between understanding returns and classifying returns we can look at the example of a dress being returned.

Classifying why people returns items into buckets looks something like this:

Why did you return the item?

  • Size 
  • Fit
  • Colour
  • Price
  • Changed mind
  • Ordered multiple sizes
  • Arrived Late

Understanding why customers return items looks more like this:

Please tell us why you returned the item?

“Dress would be the perfect length if the straps were shorter or adjustable”

“Fits well around the waist but is too big around the shoulders - I could go up a size but then it would be too big at the waist.”

“Dress itself is a great length and the fit is perfect but the sleeves are soooo long”

“I really liked the the colour but it wasn’t the same as the picture on the website and I need a lighter green for a wedding”

“Hang on”, someone might say “couldn’t the first three reasons simply be bucketed under ‘Size / Fit’?” 

Yes, they could, if the objective here was simply to assign a name to a collection of reasons.

But of course, it isn’t.

The goal is to identify exactly what you can do about it. The reason the dress doesn’t fit is different in each example - which means what your organisation would do to impact returns for each of them is different too. 

Likewise for the final example that relates to colour. The individual liked the colour, it just didn’t match what they were expecting. A colour that people don’t like is a completely different issue to a photograph which inaccurately represents a colour in real life. 

One is an issue with the physical product, the other is an issue with visuals on the website. What an organisation would do to fix these colour issues (and which team would be responsible for making the change) is completely different depending on the specific reason an item is returned due to its colour.

The most common reason organisations struggle to reduce returns is not understanding why customers are returning items. 

The first step is to make sure that your organisation does. 

Methods to reduce returns

What’s the next step?

Once you have that visibility you can take action. There are so many different ways to reduce returns and the right approach will depend on the reasons your customers are returning items to you. Not to mention the customers that you are targeting - not all customers are created equal.

However broadly the four main ways can be summed up as changes to education, technology, product and policy.

Education

Education is where a lot of organisations that I work with begin. Typically it is easier to make changes to something digital such as the information displayed on the app or website rather than a physical product. 

Proactively adding information, such as the dimensions of the model wearing the clothing, is an easy way to do this. This can be augmented with information about the fit and any other factors that frequently come up in returns reasons (such as the cut or whether the straps are adjustable). Showing the same item on different sized models is another approach to providing the customer with more information. 

93% of shoppers report reading customer reviews before they buy a product and the introduction of product reviews is another way to educate. Reviews allow customers to understand how other customers experienced the item including tips such as whether they sized up or down and other relevant information. 

There are multiple ways to educate depending on the nature of the product (product demos are another example), but having a robust understanding of the specific drivers of returns is what provides the intelligence to implement them effectively.

Technology

With a firm grasp on the issues to be addressed there are also a whole range of ways that technology can be deployed to help. Some of the most common are aimed at helping customers to overcome size and fit issues. Warby Parkers’ Home Try On’ shows how any frame will look on the customers face, it can also recommend the best width and measure a customers pupillary distance to further assist purchase. 

Warby Parker's "Home Try On"

Another example in footwear uses a sheet of A4 paper and a smartphone to suggest the right size of shoe. 

StrutFit's footwear sizing platform

Again, a thorough understanding of returns reasons provides the evidence to deploy the right technology and measure its impact ongoing.

Product 

Changing the physical product is of course another way to reduce returns. Taking the dress example from earlier, if large numbers of people are returning the dress because they find the sleeve length disproportionately long, this could be addressed by making a change on the next production run of that style. 

However, unlike education or technology interventions, the impact of physically changing a product stretches beyond returns. Something that causes one customer to return an item could be the exact reason why another customer chooses to keep it. 

This is where a broader understanding of customer perception is critical. To reduce returns by changing the product it is essential to have an equally good understanding of why customers choose to keep a product. Product reviews, in addition to the benefits that they provide to educate other shoppers, are one of the main sources of this broader intelligence. A robust understanding of why ‘non returning’ customers are satisfied with the product, combined with good intelligence on why customers return an item allows product changes to be made without risk.

Policy

Changes to returns policies is another option to reduce returns. However, organisations need to tread carefully. An brand’s returns policy impacts all shoppers, not just those who return items. The ability to return items remains a fundamental part of online shopping. This is not surprising when customers are purchasing something that they have never seen, touched or tried on. 74% of shoppers are said to read a brand’s returns policy online as part of their browsing / purchase experience. A prohibitive or non-existent returns policy would undoubtedly affect sales. 

This challenge again highlights how returns are a classic CX problem. Solving the puzzle relies on understanding the customer. Striking the right balance and crafting the appropriate returns policy for your organisation goes beyond understanding why people return items. It also relies on having a solid grasp of why customers shop with you and what is important to them. As well as understanding the customers you want.

As with other elements of the experience, a brand’s returns policy will favour different customers. A liberal returns policy indirectly penalises those who never return items as the costs of other people’s returns are baked into the pricing they pay. 

Likewise there are scenarios to encourage and those to discourage. As ASOS CEO Jose Antonio Ramos Calamonte outlined in the company’s latest earnings report there are ‘good returns’ and ‘bad returns’. Good returns help with new customer acquisition and increased basket size. Bad returns come from unprofitable customers or from things that were preventable. Ensuring a new customer feels confident to purchase because they know returns are easy is very different to a customer ordering an outfit to post pictures on Instagram and then returning it.

A well crafted returns policy allows an organisation to influence the type of behaviour they desire from their target customers.

Reducing returns while staying competitive

The impact of an ever more digital world means that for any ecommerce or omnichannel retailer to survive the next 5 years they will need to reduce returns while staying competitive. 

Genuinely understanding why items are being returned makes it possible to start with the easiest things to fix (information errors, lack of clarity etc) and build from there. When you combine why things are being returned with the other information you hold (product, colour, size, customer type, lifetime value etc) magic happens.

Minimising avoidable returns in this way then increases the flexibility you have to make the experience seamless for the unavoidable / beneficial type of returns.

I’m fortunate enough to work with a broad range of organisations and I’ve seen some incredible processes for returns reduction; traffic light systems by product and category, automated flags for issues on target lines, different teams collaborating together and tight feedback loops on every new line to flag high return drivers as soon as possible. 

These organisations have delivered significant reductions in returns and continue to optimise and find new ways to keep returns low. However all of these systems started simply, with understanding the reasons and making some initial changes.  

Every journey starts with a single step, and when it comes to returns it’s a very simple one. 

It might be the time of year when things get pushed to January but there is one thing that you can do in this ‘in between time’ between mid December and the new year - find your returns data and take a look at it.

Is it providing you with rich insight? Does it tell you exactly why people are returning items and exactly what you can do to fix it? Does it allow you to identify returns that are avoidable and returns that are not?

If the answer is no, perhaps you’ve identified the first item on that January to do list…

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