Consumers spend billions of dollars on gifts every year that will eventually be returned. The post-holiday return statistics are especially eye popping.
A recent study by FedEx revealed that about one-third of Americans will bring back at least one gift this season. In 2012, according to the National Retail Federation, returns accounted for about $264 billion in lost sales for U.S. retailers, reflecting about 11 percent of total holiday sales.
Although the number of returns seems to be dropping as a result of the rise in gift card popularity, the value of those returns as a percentage of holiday sales is still rising, according to American Research Group. As a result, managing returns is still a key part of growing a profitable business.
Treating Customers Right
Consumer psychologist Kit Yarrow recently noted that a retailer’s return policy is critical because customers feel the relationship with the company “is just that—a genuine, personal relationship—and that a violation of trust via a bad return experience can ruin this relationship forever.”
As a small-business owner, you can forge strong relationships with your customers by not following big retailer trends of limiting returns. These five tips for what not to include will help you craft a return policy that makes everybody happy:
1. Store credit only. Many companies allow product returns but require customers to exchange the unwanted item for another product. But most customers don't see this as a true return since they're still forced into a purchase. If you require someone to buy something they don’t want as part of the return process, you've still got an unsatisfied customer on your hands.
Use this policy instead: Small businesses should always allow a return for a full refund. But you should also train your employees to help customers find a similar product that can satisfy them. Locating another desirable product can help cut back on lost revenue.
2. Short return policy. Some big box retailers are now giving consumers as little as 15 days to return a products they no longer want. With the hustle and bustle of the post-holidays and the fact that many people travel this time of year, this time frame may be unrealistic for some consumers.
Use this policy instead: Having a generous return policy can help you boost sales because many customers who are on the fence about a purchase will often buy more from a store if they know they can return the item without a problem. While you might not be able to offer as generous a return policy as Hammacher Schlemmer, which allows returns for the life of the product, you can be flexible. Publicize a standard return policy of 30 days, but be lenient if a customer returns a product even a few weeks after that date. Your customer will be so relieved that you accept the return, they'll be more likely to buy from you again.
3. Return shipping fees. For most retailers, free shipping for returns is becoming part of the cost of doing business. If customers feel there's no risk by ordering online or over the phone, they're more likely to make the purchase.
Use this policy instead: Emphasize that your company will pay for return shipping if the customer is dissatisfied with the product. Set up a procedure where a shipping label with postage can be sent to your customer to reduce your costs.
4. Restocking fees. Some retailers are now charging as much as a 50 percent restocking fee on opened and even new returned products.
Use this policy instead: Never charge a restocking fee on any product return. For unused items, simply offer to exchange the product or give your customer cash back. And while you shouldn't offer cash back for used products that can’t be resold, you should allow customers the opportunity to exchange the product for something else. Include any internal cost as part of your overall cost of goods sold to ensure a high-enough gross margin.
5. Send it back only where it came from. Some retailers, including Sports Authority, won't let consumers return products they bought online to retail brick and mortar stores. While this is most likely an infrastructure issue, it's just plain bad for business.
Use this policy instead: Your customers see your company as a single entity no matter which channel they buy through. Ensure that your infrastructure can support the customers’ convenience and allow returns through any channel.
Even with a strong and customer-friendly return policy in place, it's important to be on the lookout for customer returns that are fraudulent (i.e., they never bought the product from your company in the first place). The National Retail Federation estimates that nearly 6 percent of all holiday returns will be fraudulent this year, up from 4.6 percent last year, costing businesses an estimated $3.39 billion. To help fight fraud, many small businesses now require a receipt or picture ID. Repeat returners should be singled out and no longer be a customer.
What's in your return policy? Share with us in the comments below.
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