Top 4 Reasons Your Ecommerce Business Needs a Return Policy
Many e-commerce professionals view return policies as a necessary evil. After all, a third of most e-commerce sales result in a return. However, when used correctly, return policies are hidden gems. They can improve customer conversion rates, increase repeat customers, skyrocket profitability, and boost brand perceptions.
While reducing returns is essential, it’s equally important to implement a return policy that encourages brand loyalty. Many retailers have made their return policies more lenient over the past year. The pandemic’s shipping lags have forced e-commerce brands of all sizes to push their return windows back. However, these brands have increasingly found that their new policies have led to higher sales and fewer returned items.
A 2014 Journal of Retailing study suggests that there are five primary return policy elements:
- Time: Retailers specify deadlines in their return policies (e.g., a 30-day policy, a 90-day policy). Policies that provide more time to return products are more lenient.
- Monetary: Lenient return policies allow for a full refund of the amount paid for the product. Strict policies allow only a portion of the purchase price to be refunded.
- Effort: Some retailers create guidelines for customers returning products (e.g., requiring the original receipt, tags, or product packaging to be retained). Return policies requiring less effort from consumers are more lenient.
- Scope: Some stores limit items they consider “return-worthy.” For example, products purchased on sale may not be eligible for return. Policies with a greater extent of “return-worthy” items are more lenient.
- Exchange: While some retailers offer cash refunds, others provide store credits or product exchanges for the returned items. Return policies that allow cash refunds are more lenient.
The study also concluded that overall, lenient return policies led to increased purchases. Studies also conclude that lenient return policies lead to a decrease in returns.
For example, Jenn Kapahi, co-founder and CEO of TreStiQue, extended its exchange policy from 30 days to 60 in March of 2020. As a result, the company saw its return rate drop by 30% over the following four months. It also experienced a 44% increase in routine sales vs. individual product sales.
Here are four reasons why your online store should implement a customer-focused return policy.
1. Your customers want to see a return policy before making a purchase.
91% of consumers interviewed in a recent Harris Poll said that a store’s return policy was an essential factor in making a purchase decision. Additionally, according to a study completed by TrueShip, over 60% of customers review a return policy before purchasing decisions.
These studies demonstrate that:
- More purchases will occur if given the option to return products.
- Consumers are willing to pay more for the option to return an item.
2. A good return policy can improve customer retention.
Customers who have a good return experience are more likely to shop again. In fact, E-commerce businesses with at least 40% repeat customers are likely to have 50% higher sales.
According to one 2019 UPS study, 36% of online shoppers made a return in the previous three months. Out of these shoppers, 73% said their returns experience would affect their decision to buy again.
3. Implementing a return policy with insights can increase profitability.
By analyzing customer feedback, retailers can gain a better understanding of why certain products get returned.
E-commerce brands can aggregate customer feedback into different categories. These include return reasons and types, product manufacturers, product attributes, and more.
Using these categories, retailers can find common factors between products. Exploring deeper into specific return reason codes can pinpoint the cause of the problem.
If one product frequently gets returned because it’s defective, retailers can reach out to the manufacturer to fix the defect. After you do this, returns will go down, and sales will likely increase.
4. Return policies improve public brand perception.
There are many reasons why return policies improve brand perception. Here are a few:
- The longer a customer owns an item, the more attached they feel to it.
- Customers who have a positive return experience are more likely to shop from an online retailer again. In fact, according to a Narvar study, 95% of online shoppers say that a positive return experience drives loyalty.
- Consumers with positive experiences are more likely to share their experiences online. Positive return experiences lead to positive shares.
“Most shoppers are frequently returning online purchases while remaining loyal to brands if they have a positive experience,” says Narvar CEO Amit Sharma in an announcement covering Narvar’s survey findings. “Retailers who want to remain competitive will find ways to reduce friction in the return process.”
Returns are simply another opportunity to improve brand rapport and provide a positive customer service experience. When the brand return experience is positive, it increases sales, decreases returns, and drives customer loyalty. When paired with return insights, a customer-driven return policy can lead to better business decisions and increased profits.
Many e-commerce stores spend as much as 80% of their marketing budget on customer acquisition. But it can be more lucrative to focus on customer retention instead. 8% of repeat customers create 41% of an e-commerce store’s revenue, so your business should prioritize keeping customers coming back. Returns help to increase the Customer Lifetime Value (CLV) of an e-commerce store.
Repeat customers are easier to sell to, spend more on each purchase, share positive posts about brands, and increase overall profitability.
