Eight strategies for better managing returns
November 14, 2017
In the current retail environment, more and more e-commerce companies are building out physical store networks, while traditional brick-and-mortar retailers continue to focus on e-commerce. These convergent trends aim to better serve customers, who expect to be able to order anywhere, at any time, and receive products through their preferred method of delivery.
These customer expectations go well beyond e-commerce fulfillment, and retailers are now honing in on returns as a strategic priority. Returns have become more important than ever in a customer’s journey, and that requires a customer-centric supply chain that can reliably deliver a great brand experience.
And just retailers must fulfill orders through a variety of channels, they must also enable returns through the same omnichannel network — whether that means accepting returns at brick-and-mortar stores, returns centers or other third-party locations.
The question then becomes: How can companies enact an appealing return policy — one that fosters a great customer experience and drives customer loyalty — while managing the complexities and costs of omnichannel returns? While there is no easy answer, here are several strategies that can help.
- Foster customer loyalty through returns.
Returns are too often seen as a necessary cost of doing business. Instead, they should be viewed as an opportunity to enhance the customer experience and foster customer loyalty. Starting at a macro level, your return policy should be appealing for customers. At a more tactical level, companies should create a value-added returns process that achieves the right blend of customer satisfaction and customer engagement — two distinct concepts that need to align to your company’s strategic positioning.
- Enable faster credit processing for customers.
Coinciding with fostering brand loyalty, it’s becoming imperative to quickly credit consumers after a return. Increasingly, customers want the returns process to be as easy as the initial transaction. In fact, the ability to buy online and return in store “is emerging as a core consumer preference,” having increased in popularity by 50 percent from 2016 to 2017, according to survey results from JDA Software. By tangibly handing over the good and ensuring the return, consumers get a greater sense of control and can receive credit immediately.
- Speed processes and add value through continuous improvement.
The concept of continuous improvement cannot be stressed enough, and this strategy should fuel each activity within your reverse logistics operations. The longer a returned good sits on a shelf, in a truck or in the backroom of a store, the less value you can recuperate. The cost implications become more severe when you consider the potential for duplicated processes, touchpoints and transportation along an omnichannel returns channel. This is where finding a third-party logistics provider with a proven track record of operational excellence can be beneficial for companies looking to improve reverse logistics operations.
- Boost collaboration between in-store operations and supply chain management.
There are times when organizational silos can hinder informed decision-making about returns. Break down those silos by fostering collaboration and communication between supply chain management and in-store operations. To encourage collaboration, education at the store level is key — especially regarding your returns strategy and its overarching disposition logic. Education can be taken a step further by developing performance standards and formalized training for in-store employees. Those efforts can be further enhanced through technology systems that integrate across stores, distribution centers and returns centers to provide full inventory visibility.
- Optimize your disposition logic.
While speed is vital for returns processing, both the accuracy and strategy behind your disposition system are also critical. If you simply push products to recycle or salvage without consistent evaluation, it can be detrimental to operating income. On the other hand, if you transport low-value items upstream for additional refurbishment, only to liquidate later, you can also needlessly drive costs. Consequently, you should optimize the net recovery value of the return — or the recovery value after the costs to carry and process inventory are considered.
- Modify policy leniency to improve profitability.
From a financial perspective, there is an inherent paradox to returns: How do you create a return policy that will increase sales without driving excessive returns that lessen profitability? To help answer that question, researchers at the University of Texas at Arlington have provided insight into how return-policy leniency can increase sales and reduce returns. They studied policy leniency over five different dimensions, including:
- Time leniency: The time period during which a return is accepted by the retailer (e.g., 30-day return policy, 60-day return policy, etc.)
- Monetary leniency: How much money the retailer refunds for a return (e.g., money-back guarantee, charging a restocking fee, etc.)
- Effort leniency: How much hassle on the part of the consumer is involved (e.g., filling out a form, presenting identification, etc.)
- Scope leniency: What products are covered by the return policy (e.g., are items on sale included?)
- Exchange leniency: What consumers get for returning the good (e.g., cash, store credit, replacement good, etc.)
Interestingly, different mixes of leniency worked to accomplish different goals. According to the research, return policies with greater leniency regarding money and effort help increase purchases. In addition, policies offering monetary awards to consumers also increase purchases. When looking to reduce returns, return policies should inhibit leniency regarding time, exchange and scope. Ultimately, however, the study’s most important finding was that returns do make business sense.
- Work with vendors to reduce returns.
If there is one thing that both manufacturers and retailers can agree on, it’s that returns are a major cost center. Employing evaluative processes, such as damage research activities and returns report cards, can be effective measures for minimizing returns. Information from those processes can then be shared throughout the retailer’s supply chain to help remediate issues, whether it involves inconsistent material handling processes or defects in packaging. The results of those efforts can then be used to inform the manufacturer’s product development and marketing teams to improve the product and better manage customer expectations.
- Take demand planning one step further.
Reverse logistics operations can be blindsided by spikes in returns, often without any indication of what’s coming. Just as demand planning informs supply chain management on the fulfillment side, there should be a corresponding process in place to predict peaks in returns. Not only can this reverse-demand planning help supply chain management, but the process can also reduce costs. If returns are managed proactively, and systems for fast and accurate disposition are in place, you can recuperate more value from those returns by readying operations for efficiency and designing better secondary-market strategies.
Managing returns brings with it many critical business issues that require resources and expertise to handle, and these strategies are only a start. For an in-depth look at the approaches discussed in this post, download “The Retailer’s Atlas for Omnichannel Returns.”