By Bill Razzouk, CEO of Newgistics Inc.
The online retail industry is experiencing a steady increase in volume. Aberdeen Research reports that, by 2010, online sales will account for 12 percent of total retail sales.
But more opportunity breeds competition; therefore, today it is essential that direct retailers[1] differentiate themselves by providing an easy shopping experience from start to finish. Many retailers have discovered that implementing an efficient returns strategy can be a winning approach as they look for new ways to differentiate themselves, improve the shopping experience and boost customer loyalty.
According to a November 2007 survey conducted by Harris Interactive® on behalf of Newgistics Inc., nine out of 10 direct shoppers[2] (90 percent) indicated a convenient returns policy as very important, important or somewhat important in encouraging them to shop with a new or unknown online or catalog retailer.
Conversely, the same poll found that the majority of those who shop online or through catalogs (69 percent) said they would not be likely to shop again with a retailer that has an inconvenient return process.[3]
Returns process warrants attention
Once an after-thought, the returns process is now a key customer touchpoint for direct retailers, as it offers them a chance to reconnect with shoppers to ensure they come back a second time.
When a customer is making a return, they are already inconvenienced and the merchant's relationship with that customer may be in jeopardy. Since the return is the customer's last point of contact, a hassle-free process is critical to ensuring customer loyalty.
Most retailers handle returns as individual, disjointed transactions and fail to take into consideration the entire returns process and its impact on the customer and operations.
In many cases, merchandise has to arrive back at a warehouse before a return can be acknowledged, creating uncertainty on the part of the customer and inefficient operations for retailers. And, because a return can take several weeks to complete this process, the retailer often loses a significant amount of sellable time during a product's life cycle, possibly sacrificing profit margin.
Benefits of improving your returns program
The first step toward a successful returns program starts by providing a solution that allows customers to return from home. Sixty-eight percent of direct shoppers in the 2007 Holiday Shopping and Returns survey said the ability to make a return from home was very important or important when deciding whether to shop with an online or catalog retailer.
Furthermore, by integrating the customer's order information onto a return label, retailers and customers will have more insight into the return. Within days after the customer drops the package into the mail stream, customer service representatives (CSRs) can proactively address customers' exchange or credit needs.
Using this approach, customer loyalty is improved through the reassurance that their returns have been received and processed. Such communications can be delivered within three days of the customer's dropping the return in the postal system.
Warehouses also can capitalize on returns visibility at the earliest stage. By receiving information about a return ahead of package arrival, an operations team can better schedule work force, reduce spikes in the workload and prepare for deliveries.
In addition, an unexpected increase in the number of a specific product being returned could help indicate a potential problem, allowing retailers to prepare a recall, negotiate a return-to-vendor with suppliers or quickly replace problem merchandise in order to save the sales transaction.
Increased warehouse efficiency and customer loyalty and retention aren't the only benefits that accrue to retailers that implement reverse logistics programs. Although supply chain processes still focus mainly on the outbound link to the customer, those retailers that focus on returns stand to gain an advantage in the marketplace.
Improved returns management can significantly reduce costs and can also provide valuable information to a retailer's planning cycles.
More importantly, an easy-to-use returns solution can increase customer retention, which ultimately results in higher sales for the retailer.
The Harvard Business Review found that, by improving customer retention by just 5 percent, an organization can increase profitability by 25 percent to 100 percent.[4]
Undoubtedly, customers who are happy with their shopping experience are enticed to shop again. Retailers that realize the sale is only the first step will provide a better overall experience for their customers, while boosting their bottom lines.
Bill Razzouk is CEO of Newgistics. He was the former COO and executive vice president at Federal Express, and spent 13 years at the company. He was integral in building the sales and marketing organizations that transformed Federal Express from a $700 million company to an $11 billion industry giant. He was also the chairman and CEO of PlanetRx.com, an internet pharmacy that raised more than $170 million in private and public markets and developed the industry standard by which all online pharmacies are evaluated. Bill also served in executive roles at Xerox, ROLM and Philips Electronics. He has served on the Board of Directors for the following NYSE companies: LaQuinta Inns, Cordis, Sanifill and Fritz, Inc. He currently serves on the Board of Directors for Waste Connections Inc. (symbol: WCN)
1 Online and catalog retailers
2 U.S. adults ages 18+ who have ever shopped online or through catalogs (n= 798)
3 Harris Interactive conducted the Holiday Shopping and Returns study by telephone within the United States on behalf of Newgistics Inc. between November 23 and November 26, 2007 among 1,017 U.S. adults ages 18+, of whom 798 have ever shopped online or through catalogs. Results were weighted for age, sex, geographic region, and race where necessary to align them with their actual proportions in the population. All sample surveys and polls, whether or not they use probability sampling, are subject to multiple sources of error which are most often not possible to quantify or estimate, including sampling error, coverage error, error associated with nonresponse, error associated with question wording and response options, and post-survey weighting and adjustments. Therefore, Harris Interactive avoids the words "margin of error€VbCrLf as they are misleading. All that can be calculated are different possible sampling errors with different probabilities for pure, unweighted, random samples with 100 percent response rates. These are only theoretical because no published polls come close to this ideal.
4 Reichheld, Frederick, and W. Earl Sasser, "Zero Defections: Quality Comes to Services,€VbCrLf Harvard Business Review, September-October 1990.
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