Why there is no fun in refunds

When dealing with online product returns, a particularly frustrating activity for the retailer is refunding the purchase. Not only does the retailer need to shell out for some or all of the following: additional reverse logistics, refurbishing, recycling and user acquisition and resale prices; they also need to pay out of pocket and give the money back to the consumer. Refunds affect the bottom line, as well as revenue recognition and forecasting.

What can retailers do to counter refunds?

There are two major methods to counter the refund, the first is enabling a “Buy Now, Pay Later” paradigm. This methodology is  a “grace period” for the item to be returned before the purchase payment is transacted. By doing this, the return reaches the warehouse before payment, and the refund is hence mitigated. This is particularly effective for (and maybe adversely encourages) bracketing. Retailers need to understand the implications and take a stand. Some models are built to incentivise multiple purchases of the same item with different size, while others try to avoid it.

The second method is an exchange.  A regular refund is pure loss for the retailer, but an exchange means there is reduced loss in revenues and inventory is constantly being shifted. With around 20% of online purchases being returned because of size and fit, it also makes sense to tap into this. An exchange for an alternative item that meets expectation ensures a happy consumer. A happy consumer means a shopper who will likely make a new purchase. An exchange ensures a better outcome for the consumer, and keeps them engaged with the brand.

Exchange has the X-factor

At OtailO, we have found that our exchange functionality essentially empowers the consumer to make better decisions about their purchases. It also saves the retailers substantially every month. By transforming refunds into exchanges we are enabling a more robust and healthy end-to-end post purchase experience.

Essentially the exchange also reduces returns. Retailers learn from consumers where sizing information must be tightened up and clarified. They can also begin to predict where particular items are more likely to be exchanged.

A few questions to ask to ensure best-of-breed exchange functionality

The exchange scenario is complex. If you are looking to implement this for your brand, here are some questions that we think you should be asking.

  • Can the solution differentiate between different parameters for optimal customer satisfaction? Size, fit color are some examples in the apparel category, but numerous other parameters may apply.
  • Does the exchange process enable like-to-like exchanges (for instance same SKU, but a different size) as well as any-to-any exchanges, (perhaps, instead of that pair of shoes you bought for yourself, you would prefer to exchange for a bag that you would like to gift to your friend)?
  • Is logistics well orchestrated? Does it ensure that the return reaches the retailer before the exchange reaches the customer?
  • What about the exchanges inventory? Is it accessible? Is it local? Are their means to  leverage local inventories to optimize exchange time and reduce logistics costs?
  • Is there a built-in inspection feature that ensures that the item is in fact, new, unused and resellable. Unfortunately, we hear too often of returned purchases that have already “been around the block” at least once.
  • Can you enable online exchanges for cross-global purchases? Are all your consumers able to tap into and benefit from this technology?
  • Can you leverage local offline affiliates and resellers for in-store exchanges? This route has the distinct advantage of direct engagement with the consumer. It drives traffic to local stores, and — with OtailO technology — enables an exchange with any potential item in the store, and not “just” like-to-like exchanges.
  • Can you learn from your exchange? Can you see emerging patterns and data?  Who is returning? What is returned? When are these items returned? The data from exchanges is pure gold, because consumers are indicating that they want the brand, they want the purchase and are willing to go the extra mile to order the item that they were hoping to receive. Exchanges give an opportunity to retailers to identify healthy, intentional purchases by loyal consumers that need a bit of help to get back on track.

Exchange is a must have!

The OtailO exchange technology effectively gives a new avenue to engage with consumers and to improve the bottom line. It also essentially mitigates the refund in which – let’s be honest – even if consumers get their money back, they have still lost their opportunity to engage with the brand. Exchange is a must-have experience for retailers who want to reframe their post-purchase experience for the consumer and want to be cost-effective at the same time. Online product returns are tangible items with tangible opportunities, and exchanges provide an incredible “return” on investment in the consumer and in the merchandise.