Executive Briefings

Make Process of Returning Products Work to Your Advantage

Product returns are typically seen as a necessary headache and a cost drain. But companies can use their return policies to enhance customer loyalty and increase profits.

Make Process of Returning Products Work to Your Advantage

When customers send back a product they've bought, managers usually view the transaction in a purely negative light. After all, researchers have estimated that manufacturers and retailers spend more than $100bn each year on return-related logistics, an average revenue drain of nearly 4 percent per year. And that number is probably conservative, because even if some returned products can be resold through subsidiary outlets that specialize in unloading used items, the loss in profit on the original sale can be substantial.

Nevertheless, major retailers such as Zappos have implemented liberal return policies that make it very easy for customers to return merchandise. Such policies can have the effect of inviting consumers to take a chance on products they might otherwise hesitate to buy. And these permissive return policies may be advantageous - firms may be able to build loyalty with consumers through their interactions regarding returned products, attracting more positive word of mouth and repeat purchases as a result. So can firms actually use return policies to improve their business? According to a new study by J. Andrew Petersen of the University of North Carolina at Chapel Hill and V. Kumar of Georgia State University, the answer is a resounding yes. Breaking with tradition and realigning corporate resources in favor of leniency toward customer returns not only benefits firms in the near term but can significantly increase their profits over the long term.

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When customers send back a product they've bought, managers usually view the transaction in a purely negative light. After all, researchers have estimated that manufacturers and retailers spend more than $100bn each year on return-related logistics, an average revenue drain of nearly 4 percent per year. And that number is probably conservative, because even if some returned products can be resold through subsidiary outlets that specialize in unloading used items, the loss in profit on the original sale can be substantial.

Nevertheless, major retailers such as Zappos have implemented liberal return policies that make it very easy for customers to return merchandise. Such policies can have the effect of inviting consumers to take a chance on products they might otherwise hesitate to buy. And these permissive return policies may be advantageous - firms may be able to build loyalty with consumers through their interactions regarding returned products, attracting more positive word of mouth and repeat purchases as a result. So can firms actually use return policies to improve their business? According to a new study by J. Andrew Petersen of the University of North Carolina at Chapel Hill and V. Kumar of Georgia State University, the answer is a resounding yes. Breaking with tradition and realigning corporate resources in favor of leniency toward customer returns not only benefits firms in the near term but can significantly increase their profits over the long term.

Read Full Article

Make Process of Returning Products Work to Your Advantage