Product returns are a sticky problem for retailers. Poorly handled, returns have been shown to increase customer churn and drive away customers. Retailers contending with high return rates are eager to recoup at least some of the value from returned goods. That has fueled a booming $400 billion secondary market, according to the Reverse Logistics & Sustainability Council, where retailers typically recoup 12 to 25 percent of an item's original cost.
Cultivating new secondary channels such as outlets, salvage centers, and auctions is certainly a big improvement over simply discarding or recycling goods. Curtis Greve, managing director of the Council, told Inbound Logistics that with returns amounting to 8.1 percent of sales, if a retailer can recover half the value by sending a product back to the vendor or selling it, that puts four percent back on the bottom line. But is that enough?
All the energy retailers are pouring into identifying and managing these channels could be spent more productively. Instead of devoting all of those resources to finding better dispositions for returned goods, they should be working to prevent returns from happening in the first place. By striving to prevent returns, retailers can effectively reduce churn and improve the customer experience.
Smart retailers strive to reduce churn.
There is a reason retailers want to reduce churn... because it drives down the cost of customer acquisition and increases the customer lifetime value.
As I explored in my previous post: Bad Return Policies Cause Churn, a study described in The Unexpected Benefits of Product Returns found when retailers understand how their returns policies influence target customers’ decisions about whether the purchase is worth the risk, they can increase both short- and long-term profits. The retailer involved in the study gained an additional $58 per customer in revenue using the authors’ recommended strategy.
The math is simple: a loss of 50 or even 75 cents on the dollar and the likelihood of a lost customer, versus $58 in additional revenue and a customer that will come back.
Investing in a better understanding of customers and their shopping experiences, including returns, is the path to increase the lifetime customer value, increase lift and reduce churn.