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Free returns vs customer retention: How to find the happy medium
What does your return policy say about your brand? A lot. In fact, according to Loop Returns, consumers believe return policies show how much retailers care; 97% of consumers surveyed said retailers with flexible and extensive return policies care more about their customer base.
Free returns have been the benchmark of tip-top customer service thanks to the pandemic-driven e-commerce boom and the Amazon takeover. But, with the cost of living pushing customers to return clothing they don’t deem a worthy investment—the cost to facilitate the growing number of free returns is driving brands to the brink.
The easy solution for e-commerce retailers and DTC brands is to pump the breaks on free returns. Simple, right? Not quite.
A survey by Loop found that 54% of consumers indicated they’re unlikely to purchase from an online retailer that doesn’t offer free returns. So, if you can’t afford the cost of free returns, but you lose sales due to customer discontent, where is the happy medium?
Let’s find out. Here, we weigh up the impacts of the return process, and how to keep more profit in your pocket by pulling back on free returns, while keeping your customers coming back.
What are your customers telling you?
Returns are just one stage of the shopping process, but they say more about your product and policies than any.
It is important to understand what your customers' shopping habits and values are telling you on a granular level: by category, geolocation and demographic. By developing a data-first approach to your customers’ actions and return reasons, you can gradually discourage behaviors that negatively affect profits (which we discuss here).
Loop’s survey found that free returns and exchanges were the top retailer offering that would make consumers more likely to make an online purchase, while a separate study by retailer insight group IMRG, reported 92% of customers say they will purchase again if the return process is easy.
Both customer preferences prove why it’s important to optimize your returns policies and systems to improve customer loyalty and retention.
What are your customers not telling you?
So you get returns data based on what comes back to you, but what about the return intent you never see? There are just as many reasons why customers don’t follow through with a return, that impact customer loyalty without you even realizing it.
Loop’s Top 5 reasons why customers haven’t followed through with a return
1. Making a return takes too much time and effort: 43%
2. The value of the product I purchased is not worth making the return: 39%
3. The return location is not open at a time that is convenient for me: 32%
4. The return policy is hard to follow and I have questions: 30%
5. I’m waiting for more products to arrive so I can make all my returns at once: 25%
Consider that all these reasons pertain somewhat to making an effort and the experience of convenience. Clarifying the ease and efficacy of your return process not only acts as a major stepping stone in getting shoppers to hit purchase in the first place but allows your customers to experience a positive returns process if they have a change of mind.
To charge or not to charge?
Today, retailers must shift to returns management strategies centered on improving customer service—strategies that are as effective for profit and retention as they are for lowering operational costs.
IMRG’s research showed that offering free returns is not a guarantee of high returns nor does a paid returns policy ensure low returns—it's all part of the mix.
The study found that a paid returns policy will not necessarily deter the customer from sending goods back if there is something wrong, or deter conversion, however, it does act as a barrier.
Strategies for the happy medium
Consider the following tips to help you ease the fallout of potentially introducing fees into your policy.
- Ensure your policy is crystal clear
It’s never too early for potential customers to receive information about your returns. The purchasing process on your website is just as much about the buying as it is about the possibility of returning, so don't be afraid to over-communicate your return policy.
With easy navigation to a return policy page, as well as visibility on your product and cart pages, customers will need to be privy to the rules around returning the product before they even open your package. Using a strong returns policy as a USP and acquisition tool can help to increase your AOV.
- Have flexible and extensive return options
Flexible processes and extensive return and exchange options are cornerstones of customer-conscious return policies. Start by taking a structured approach to returns to ensure profitability in line with your budget planning. Factoring return costs into product margins allows brands to offer returns at a lower cost to the customer via a tiered structure to shipping options.
And have at least one return option free, and play around with your free shipping thresholds. If your in-person returns are free, and you charge for mail returns, you’ll automatically drive shoppers to select the lowest cost, for an all-round better customer experience.
- Have a seamless returns process
Along with the legibility of your policy, this includes offering third-party returns and refunds. Consumers now rank in-person or third-party drop-off, box-free returns as the top preferred method for online returns. A third-party drop-off or in-store return is the fastest, easiest way for a customer to complete their return or exchange.
You can also retain more customers with instant refunds from third-party software. This allows warehouse teams to process returns in designated downtimes, with customers no longer impacted by increased wait times to get their funds back. These teams can then shift their efforts to getting orders out and reducing shipping delays. Customers who opt for an instant refund have a 62% higher repurchase rate than those who choose a standard refund.
- Use free returns as an incentive for loyalty programs
The sales generated from loyal customers throughout a membership are much higher than even repeat buyers who are not in a loyalty program, so having free returns as a benefit for these customers is a win-win.
During specific high sales periods, consider promoting "free returns for loyalty members" to encourage more customers to become members. As most loyalty programs only require first-party data from the customer (username and login), the barrier to entry is low enough to entice customers to receive free returns.
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Nearly all consumers Loop surveyed regularly review retailers’ return policies before making an online purchase, with just under half of respondents making it a point to always check the policy.
By simply adjusting your return policies, scrutinizing returns data, and offering several easy ways for customers to get products back to you, there’s no reason you can’t turn a return request in your favor.
