06 Dec 12 Product returns – Analytics could help reduce a ‘returning’ problem

Courier deliveries are a common occurrence at our offices; some of them returning with packages. Yes, you guessed right… these are ‘returns’, a word that most e-commerce companies dislike. Understandably so, as it involves repackaging, reimbursing and losses to already narrow profit margins in e-commerce. Though most Indian players claim a single digit product return rate; in reality many actually have a higher return rate – nearly 10-12% especially in apparels and fashion.

To remain competitive, a strong return policy is a must and companies will do themselves a disservice if they discontinue it. I believe that using smart analytics on the data for product returns will help companies minimize the number of products returned. Some of the important data points that should be analyzed are reasons for product returns – returns by product type, product category and type of city (tier 1, 2 or 3 cities). This data is invaluable and utilizing analytics will enable companies devise strategic approaches to minimize returns.

Why ‘product returns’:
Product returns are a fact and cannot be completely eliminated but businesses can take effective steps towards minimizing them.

The key reasons for product returns-

  1. Not matching expectations – Returns because of a product not matching its description are common and can be tackled by posting testimonials of other customers who have bought the product and a better photographic presentation of the products. Having a virtual expert for advice will also go a long way to reduce returns.
  2. Wrong order – Often the packages contain merchandise that was not ordered for by the customer. A stricter checking mechanism for order dispatch which includes tallying it with the original order will reduce returns.
  3. Damaged Goods – It is common to  businesses and can be avoided effectively with stringent quality checks for products accepted in inventory, better packaging to avoid damages in transit
  4. New products – New products tend to have a higher return rate as customers are not aware of all the features and aspects of the product. Presence of a virtual expert will help customers.
  5. Change of mind – This is the trickiest reason to tackle. Quicker deliveries and understanding the needs which prompt these customers to buy will enable the company to gain valuable insights for this category.

Though the phenomenon of product returns is a fact of life in an evolving market like India, there are means by which companies can try to arrest these losses. Profile and product return data ‘by customer-by category of product’ will provide an important key in reducing returns. A few insights that can be and have been derived from analysing this data are:

  • Data can point to customers with a higher propensity to return. For these profiled customers (having higher return rates) main players in the e-commerce market should consider forming a forum to collectively pool data for these customers and accordingly formulate measures to deal with them. Akin to the insurance industry where customers enjoy a no-claim bonus, customers who do not return and are regular shoppers (shopped at least thrice without returning) should be given incentives like discount coupons on their next purchase.
  • It has been noticed that discounted products have lower returns
  • Customers who have already paid for their purchase via credit cards or net-banking seem to have lower product return rates
  • Quicker deliveries result in lower returns because it gives less time to the customer to change his mind

Though having a strong return policy is imperative for winning the trust of the customers, I believe that analytics on the data collected in this activity will yield valuable insights for the entire business. Customer profiling and an analysis of product return statistics will provide insights for other business decision areas as well. These will point to vital information such as changing consumer tastes and the needs which prompt buying behaviour. I think that these will enable a more inclusive approach for inventory selection and communication with the customer, and will definitely reduce product returns.

Nidhi Purohit

Nidhi was a team leader at ValueNotes.

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