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Analytics Uncover the Value in Product Returns

Peter Sobotta
May 4, 2016

An important but little-known fact about product returns is that frequent returners are also frequent purchasers, according to research by J. Andrew Petersen of the University of North Carolina at Chapel Hill and V. Kumar of Georgia State University.

Analytics Uncover the Value in Product Returns

For all its benefits, one thing online purchasing lacks is a personal experience with a product. To make up for that, 30% of customers regularly order two or more sizes or colors with the intent of returning the ones they don’t want, according to research by JDA Software. This shows up on the retailer’s balance sheet as a product return. But put in context, that purchasing pattern makes the customer happy – she keeps what she likes and continues to visit and purchase from the site, generating profits that more than make up for returns costs.

Key to enabling this virtuous cycle is the customer’s low perceived risk of making a purchase: She knows she won’t have a problem sending the unselected items back and getting a refund.

Identifying and marketing to serial buy-several-keep-one customers can really pay off. In the academics’ study, profit per customer rose by more than 45% in the six-month window studied, and by 29% over three years, when a retailer used the researchers’ proposed blend of marketing and liberal returns policies to reach out to customers with this purchase-return pattern.

Such insights are the result of applying analytics to returns data and finding out fascinating and sometimes counter-intuitive insights about the business. While merchandisers rely heavily on both gut and sales data to inform their decisions, there is a third leg missing from that stool, and that’s insight into what current products are coming back, and why. When retailers can quickly identify trending issues with the products they sell through collecting and analyzing returns data, they can make smart decisions like knowing when to encourage returns, and how to change products and processes to please customers.

Regarding product returns as a painful cost of doing business is no longer necessary, or even accurate. Thanks to the advent of returns analytics, retailers can leverage new insights about their business to enhance customer satisfaction and the brand experience.

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