How to Make Free Shipping Profitable, Part 8

Not liking the product right away: Some products like home décor may take some getting used to. You could offer a longer return window for these products. As opposed to increasing returns, you might see a decrease due to this more generous policy. It reduces the pressure on customers to immediately return the item. Furthermore, the longer the product stays with the customer, the more attached to it the customer might become. This is something economists call the endowment effect.

For example, Allbirds (pictured below) offers a 30-day return window. Customers have the chance to try their shoes multiple times as well as time to “break in” the new shoes.

Source: Allbirds

Buying things by mistake. Customers check out by accident from time to time. Consider giving customers the option to cancel their order within a short period after placing the order. This helps customers reorder the correct item before fulfillment begins. The problem gets corrected before it costs you money to fulfill the order, pay for the return, and to restock.

Pros

• Better product descriptions and visuals help set customer expectations before purchase.
• Allowing a cancellation window for mistakes can prevent returns before you incur fulfillment and return costs.
• A superior product page increases the perceived reputation of your online store, driving up conversions.

Cons

• There’s only so much that visualizations and descriptions can do for items that rely on other senses (e.g., gourmet food/snacks, apparel, perfume).
• Being proactive with customer needs can reduce returns if you decide to offer free, trained and responsive customer support.
• It may require investment in professional photography and video production.

2. Minimize returns with packaging feedback.

Customer feedback is a critical element to understanding why returns happen in the first place. These insights can prevent returns resulting directly from fulfillment errors such as damaged goods.

When items are damaged during shipping, all stakeholders end up losing. For example, to reduce costs, a merchant shipped a wire mesh strainer using a bubble mailer. The strainer was squashed flat when it arrived to the customer. The merchant had little choice but to refund the customer.

This problem can get magnified when you have thousands of SKUs in your catalog. If you don’t have a system to monitor and adjust your packaging, you end up exacerbating the problem.

Reducing damaged merchandise during transit requires a balance between product safety and profitability. Merchants can either build such technology in-house or leverage modern multicarrier shipping software solutions that utilize machine learning to suggest optimal packaging for products. Such technology can help online retailers minimize these errors and losses pre-emptively. Some logistics providers monitor the shipment progress from start to finish, including customer returns, and marketplace seller performance ratings to help merchants measure the impact of fulfillment and shipping on their overall customer satisfaction.

Source: Cahoot E-Commerce Order Fulfillment Network

Regular and timely customer feedback is the key to sustainable business growth. Therefore, encouraging emails or calls from customers can help you understand what went wrong in a transaction and rapidly deploy corrective action when appropriate.

Pros

• Spotting incidents of damaged-in-transit due to improper packaging early can stop further losses.
• Machine learning technology can capture and fix fulfillment missteps at scale.
• High-touch returns processes like emails or calls to customer service can deter impulsive returns.

Cons

• Machine learning technology for packaging isn't easy to implement and may not be readily available from your current software vendors.
• You may need to employ additional resources or spend more time processing customer feedback.
• High-touch returns processes like emails or calls to customer service can lower your sales conversion rate.

3. Restrict returns from bad actors.

Creating a returns policy is a balancing act. On the one hand, you want a more relaxed policy to boost customer confidence while purchasing. On the other hand, you want tighter restrictions that deter bad actors. According to Appriss Retail, fraudulent returns cost merchants $27 billion in merchandise in 2019. This calls for merchants and marketplaces to be more vigilant in spotting bad actors.

Some statistical analyses can help you predict high-risk shoppers. You can employ R programming language to perform a segmentation analysis, regressions to predict factors that contribute to returns, and employ advanced data science techniques like differences in differences. The success of these analyses depend heavily on your ability to gather and accurately process large amounts of customer data. Or, better still, if such capability is supported natively in your existing systems (Order Management System, CRM or WMS.)

After narrowing down the typical characteristics of bad actors and their modus operandi, you can tailor a returns policy that discourages them. For example, replacement or refund is only issued once the item has been inspected in your warehouse; free returns with no restocking fees only apply to certain items or return reasons; and electing to cancel orders placed by known bad actors.

Pros

• Minimize damage from fraudulent returns via a data-driven returns policy.
• Advanced segmentation analysis can help you better understand your customers and their needs.
• Spot fraudulent returns by leveraging learnings from other merchants and popular marketplaces.

Cons

• A restrictive returns policy prevents you from advertising “free returns” sitewide.
• Investment in advanced data analytics can only be justified if fraudulent returns are a big enough problem for a merchant.
• Canceling orders from suspected bad actors may hurt your reputation or performance metrics on some marketplaces.

4. Offer in-store returns to save on shipping costs.

Accepting returns in-store has significant benefits. First, neither you nor the customer needs to pay for return shipping. Second, it opens up the opportunity for more sales when customers visit your store. And third, some customers prefer this method as they don’t need to bother with repacking and mailing the item. Eighty-three percent of shoppers prefer to return items to physical stores regardless of buying online or in-store. It’s also faster in some cases, such as a T-shirt size exchange.

A UPS survey found that more than two-thirds of customers who came to return at a physical store ended up buying something else. So even if a customer isn't interested in the product anymore, there’s an opportunity to upsell other items in-store. You can also enhance that conversion with coupons offering discounts for customers coming for returns. For example, Kohl’s gives anyone returning Amazon products at its stores a discount coupon. If you’re a merchant with no physical presence, there are return and exchange services like Happy Returns that connect online businesses to physical stores to accept your returns for a fee.

Pros

• No return shipping fees are incurred by either party.
• Lower return shipping costs because stores can pool restocked products into one bulk shipment to the warehouse vs. a myriad of small boxes.
• It's an opportunity to retain a dissatisfied customer by offering an instant exchange, upsell or store credit to buy more merchandise, recovering the lost sale.

Cons

• Partnering with stores that don’t sell your products may result in cannibalization.
• Impractical for customers located far away from designated return stores.
• Partnering with another firm to take your returns can be costly.

5. Use a consolidator to reduce international reverse logistics complexity.

If you sell internationally, returns can be a logistics nightmare. Not only is it expensive and complicated with different carriers, but it also involves dealing with border customs and duties. When you sell on international marketplaces such as Amazon, you're required to offer local return addresses in countries you’re selling in as well as free return service.

International returns can, however, be very pricey directly through carriers, forwarders, or Fulfillment by Amazon (FBA). Some solutions exclusively handle international returns, such as InterCultural Elements, Salessupply, and ReBOUND. They pool product returns to cut down the return shipping costs. These services collect returned items from multiple sellers in one country (e.g., all returns from your customers in Spain) into one warehouse and ship them in pallets to their source country’s warehouse (e.g., InterCultural Element’s warehouse in the U.K.). From there, they send the returned products back to each seller’s warehouse.

Pros

• Help sellers meet marketplace requirements, such as a local return address and free returns.
• Customers are more likely to purchase if returns are available within their country.

Cons

• Returned goods take longer to reach the seller, so it may not be suitable for seasonal apparel, personal care and perishable products.
• Goods will take longer to be renewed/resold once a return happens.

Manish Chowdhary is the founder and CEO of Cahoot, a peer-to-peer order fulfillment network where merchants collaborate to increase their sales and margins by offering profitable one-day and two-day free shipping to customers nationwide without spending a penny more than the economical ground shipping.