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Online returns are all too often seen as an inevitable loss of revenue by online retailers. The vast majority surrender to offering their customers a refund, with little assistance beyond a cold returns address and a customer support email. Indeed, each year, returns cost retailers an estimated $816 billion in lost revenue.
The consequences of poor returns are greater than many companies realize: in our latest consumer study, we found that 68% of consumers wouldn’t purchase again after a negative returns experience, which leads to accrued long-term lost revenue from abandoned customers. In fact, for every order returned, businesses lose 66% of the cost of the original price due to refunds. So say a customer ships back $50 worth of goods: for each return, they lose a staggering $33 – now times that by thousands of order refund requests each day.
But it’s not all doom and gloom. In fact, returns management is arguably a vastly overlooked opportunity for ecommerce brands to retain revenue, save on costs, and deliver a second good impression. While many assume that consumers prefer no-questions-asked refunds, our study found that in reality over half (53%) of shoppers want the flexibility to choose between multiple returns options. Repeat after me: a return does not equal a refund.
Read on to discover how to retain revenue through Returns Management.
What are item exchanges?
Item exchanges are when customers return a purchase item for another item from your online store. This exchange could be for the same article in a different size or color, or in some cases another item entirely, with the cost difference accounted for.
How do item exchanges retain revenue?
Exchanges are a win-win for both online retailers and customers as they:
- allow merchants to keep cash in the bank.
- leave customers feeling satisfied as they leave with the item they want.
Offering exchanges due to poor size or fit is a particularly effective way of giving customers positive returns experience, considering that 70% of order returns are due to poor size or fit.
Beyond the immediate revenue retained from exchanging an order, exchanges are fantastic for your bottom line as they give online retailers the opportunity to keep the relationship going with customers.
Ultimately, by keeping customers shopping on their site rather than somewhere else, online retailers are able to significantly increase long-term brand loyalty and Customer Lifetime Value (CLV): research shows that when a company achieves a 7% increase in brand loyalty, the customer lifetime value of each client can rise by 85%.
How can online retailers optimize item exchanges?
While offering exchanges is a great first step in itself, we recommend that you go a step further and implement the following strategies to fully optimize the exchange experience so as to further retain revenue:
What is store credit?
Store credit is an immaterial value that retailers offer customers instead of a standard cash refund. It is only valid from the issuing retailer, and is usually stored on client accounts. Store credit can be indefinite, but also often have a time limit – often around 12 months upon issue.
What is the difference between store credit & gift cards?
Gift cards represent a fixed value rather than a flexible credit balance. They are limited to a specific predetermined amount, unlike store credit where the value can vary depending on the customer’s transactions within the store. Gift cards can come in the form of physical cards but can also be virtual codes to use at checkout.
How does credit retain revenue?
Unlike refunds, a store credit balance isn’t transferable to other stores or brands, meaning that revenue is retained.
It might surprise you, but our recent consumer study found that 69% of customers would accept store credit without an incentive.
Why, you ask?
For one, store credit and gift cards empower customers to dive immediately into their next purchase – key in today’s fast-paced consumer environment. These two return options allow customers to bypass the anxiety of having to wait days, if not weeks, for the refund to show up on their bank account, relying on their payment provider and the customer's financial institution to complete the refund in a timely manner. Indeed, it typically takes 5-10 business day for refunds to appear on a customer's bank account.
What’s more, since store credit and gift cards often take years to expire (if ever!), they grant customers the time to carefully select what they want to align with their evolving preferences – an advantage that refunds typically limited to 14-90 day windows simply can’t compete with.
How can online retailers best leverage store credit and gift cards?
From exchanges to store credit and gift cards, all of the above strategies offer an efficient way to retain revenue that would have otherwise been lost due to refunds.
We’ve created a handy tool to give online retailers a precise idea of how much revenue they could retain by encouraging customers to request alternatives to a refund.
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