With fraudulent returns totaling $15.5 billion annually, many retailers are implementing stricter policies, often at the expense of alienating good customers. But Tom Rittman, vice president of marketing, The Retail Equation, said retailers are increasingly pursuing "return optimization" solutions, which not only seeks to lower fraudulent returns but also to enhance the return experience to drive incremental revenues.
Writing for RIS News, Mr. Rittman said customers dislike two aspects of the return process: 1) Overly strict return policies, and 2) the feeling that return policies are subjective and at the whim of the store employee.
To remove these frustrations for consumers, Mr. Rittman said retailers are using software to gain access to a customer's transaction history, return history, and buying preferences. This helps determines whether or not the return is valid, consequently simplifying and objectifying the decision-making process.
But the second part of "return optimization" involves offering incentives following legitimate returns that can drive customer loyalty and possibly sales. Typically, these incentives are based on predictive behavior and retailer-specific business objectives, according Mr. Rittman.
"Shoppers who are already in the store making returns are encouraged to stay, shop and spend the money they just received back from the return," wrote Mr. Rittman.
Not surprisingly, Retail Equation offers both solutions. Mr. Rittman claimed retailers using Verify-1, a solution for verifying fraudulent returns, achieve a five to 12 percent overall reduction in returns without negatively affecting customer service. Retailers using Retail Equation's Return Rewards solution, which customizes a coupon for individuals based on their spending and return habits, have experienced an incremental sales increases of more than 1 percent.
Mr. Rittman believes the weakening economy will likely increase returns from cash-squeezed consumers but also makes chasing incremental sales in areas such as returns more important.
"As consumers purchase fewer and fewer items during difficult times, every transaction - be it purchase or return - becomes increasingly important to retailers," wrote Mr. Rittman. "And every customer becomes increasingly important, which is why it is critical to embrace return policies that are not only good for retailers' bottom line, but also those which help retailers further establish relationships with their customers."
Discussion Question: What do you think of offering incentives to consumers following legitimate returns? What are some challenges of making such "return optimization" solutions work smoothly and effectively at retail?