Dear Dr. pROfIt: Test to Find a Profitable Returns Strategy
Dear Dr. pROfIt: We sell items that have a 25 percent return rate. In other words, one out of every four items we sell is returned to us for one reason or another. My boss thinks we should stop marketing to customers who return merchandise. I believe it's unfair to stop marketing to customers who return merchandise, because it isn’t the fault of customers — it's our fault for not meeting customer needs. What do you think?
Dr. pROfIt: Twenty years ago, if a direct marketer stopped sending catalogs or direct mail to a customer, it was entirely likely that the customer would never purchase merchandise again. Today, the world is a very different place. Direct marketing is now very similar to retail marketing, in that customers decide how, when and where to shop.
This fact gives you, the direct marketer, considerable flexibility. Because your customers can always shop your website, consider not sending email marketing messages to customers who have returned merchandise in each of their past three purchases. If that sounds too extreme, consider cutting the email marketing frequency in half.
Or better yet, execute a test. Divide your email marketing list of high-returns customers into three segments, sending all emails to the first segment, half of the emails to the second segment and no emails to the third segment. After three months, calculate the profit generated by each segment, after accounting for returns. The segment that generates the most profit is likely to be the strategy that you should employ across high-returns customers.
Use the same testing methodology within your catalog or direct mail channel, should you leverage those channels as well. After a few months of testing, you’ll know which strategy is most likely to generate the most profit across segments of customers who tend to return a lot of merchandise.