How To Develop a Solid Returns Policy

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Now that your e-commerce business is up and running and your products are going out the door, and you’ve read our articles about Shipping and Fulfillment and Drop-Shipping, it’s the time to focus on the last part (but definitely not the least important) of our shipping methods series: reverse logistics. Being able to accept returns and exchanges is key to building a successful e-commerce business, and developing a solid returns policy will help you keep your churn rate low and build a loyal customer base.

E-commerce never could have grown into the force it is today if it weren’t for the ability to reliably ship products. E-commerce, as an alternative to brick-and-mortar retail, required a dependable infrastructure in place to make it just as easy for consumers to receive their goods, otherwise shoppers would have always opt for the physical store.

For the same reason, it’s just as important to provide your customers with an efficient and straightforward way to return or exchange products. Your returns policy shouldn’t be designed to discourage returns, rather it should be seen as a value-added service for your customers.

This approach has allowed Zappos to achieve an unprecedented 75% return customer rate and break 1 billion USD in sales in 2008. Zappos has made returns a core part of their marketing strategy, which is one of the reasons why they are so often praised for having the best customer service in the business.

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When it comes to developing your own returns policy, start with these key tips and philosophies:

Be Transparent

The conventional wisdom suggests that a high return rate is a bad thing, so many traditional businesses make the mistake of trying to discourage refunds and exchanges in any way they can. This often comes in the form of making it difficult for the customer to return a product, such as by not being clear and upfront about the return policy or by forcing customers to contact customer service directly.

If you force your customers to hunt for your return policy, you are ensuring that they won’t buy from you again. In fact, surveys have found that most customers want the details of a return policy ahead of the time of purchase, with 72% of German respondents and 48% of American respondents claiming they would give more business to stores that have hassle-free returns.

Tell shoppers right from the beginning how easy it is to return a product if it’s damaged or not what they expected, how much time they have to file a return, and how refunds are awarded in terms of cash, credit or product exchanges. Include this information in an obvious and easy-to-find location so shoppers never need to hunt for it.

Extend the Return Period

Most returns policies range from as short as 14 days up to 30, 60 or 90 days. Admittedly, it doesn’t seem fair to let consumers use products for much longer than that and still return their purchase free of charge.

But the latest trend, spearheaded by Zappos and Coastal.com, is to offer a 365-day returns policy. According to Zappos’ head of customer loyalty, Rob Siefker, the longer the return period, the more comfortable shoppers are about making their purchase in the first place, which in turn increases your overall conversion rate.

In fact, when clothing and accessories retailer 3rd Power Outlet increased their returns policy from 14 to 90 days, the total number of returns actually decreased. If consumers have more time to decide whether or not to return a product, they feel less pressure about it and are more likely to become comfortable with something even if it didn’t fully meet their expectations.

Automate

Returns are a hassle. Not only have you lost a sale but you also now have the added logistics and paperwork of managing your refunds, costing you time and money. Rather than staffing a returns department, businesses should try to automate as much of the returns process as possible.

Automation benefits both you and your customers. By having a returns/exchanges form they can fill out online, you save the customer the hassle of calling in and save yourself from staffing someone to answer the phones. You can also simplify the whole process by shipping out pre-printed return labels along with every purchase so that the customer has nothing to worry about.

Be Accurate and Descriptive

At the end of the day, you still want to keep your return rate low. The best way to do this is to be as accurate and informative in your product descriptions as possible. Include everything you can, such as the product’s dimensions, colour, weight, material, and whether there are any additional elements required such as batteries or specific maintenance requirements. And of course, include several detailed photos.

Ask for Feedback

Finally, your returns policy contributes significantly to your customer’s overall experience. Even if you followed each of these tips to the tee, you’ll never know how solid your returns policy is until you ask your customers. If they are not impressed enough to come back for more, ask them why and adapt your policy to meet their expectations.

After having a positive returns experience, 95% of shoppers will revisit an online store to make another purchase and 45% of them will actually recommend you to their friends, according to Endicia. So when it comes to managing your shipping and fulfillment, don’t forget about this all-important step of developing a solid returns policy.

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Drop-Shipping: Outsourcing your Shipping and Fulfillment

Drop-shippingSo you’ve decided to start an e-commerce business. You’ve read our articles about the Pros and Cons of Opening a Web Store, How to Choose the Right Payment Methods, and How to Market to Your Target Customers. But there’s still one more challenge to face when entering the online retail industry: shipping and fulfillment.

Navigating this aspect of selling goods over the internet can be complicated, so in order to dispel some of the confusion we’d like to explain some of the finer aspects of shipping and fulfillment. We’re going to begin by explaining a common and simple way for small merchants to taking care of their shipping needs in one fell swoop by outsourcing that aspect of their business. This method is called drop shipping.

Drop shipping makes it simple and affordable to run an online retail store. With drop shipping, once an order has been placed the retailer contacts the wholesaler and has them ship the goods directly to the purchaser. The benefits of drop-shipping include:

  • Lower costs: You don’t need to keep a stock of inventory and to process shipping information, which saves small business owners a sizable amount of labour and overhead costs.
  • Low risk: In order to keep an inventory of your products, you need to purchase those goods. But what happens if the products don’t sell? You have no way to recover the initial investment you made on them. With drop shipping, you don’t need to purchase the products until a customer has ordered them.
  • Testing the market: Since there’s no risk of lost investment on stocking goods, you can test out more new product offerings. If you find that there is no market for them, you can simply delist them without having any leftover stock to go to waste.
  • Higher selection: With drop shipping, you’re not limited to the total amount of stock that you can fit in your storage facility, so it is easier for you to offer a wider range of products for your customers.
  • No shipping issues: Even for a small business, handling the logistics of shipping and fulfillment, from packing boxes to buying insurance and contacting couriers, is a full time job. If your business is still small and you can’t yet afford to hire additional staff, drop shipping allows you to fulfill your orders and begin to grow.

But don’t start drop shipping just yet – while it’s an ideal solution for many small retailers, especially those just entering the e-commerce business,there are two major disadvantages that mean that, depending on the nature of your business, it may not be the right fit for you.

Drawback #1: Slim Profit Margins

The main drawbackto drop shipping is that absorbing less risk always comes at a cost and in this case that cost is a lower profit margin. In some cases, retailers may find that their wholesale drop ship costs are as high as their competitors’ prices, leaving them no room to make a profit.

There are two main reasons why drop shipping results in much slimmer profit margins. The first is that wholesalers themselves don’t make much of a profit on individual products, they make their money by selling in bulk to retailers. When you drop ship, you aren’t paying the bulk price, you’re paying the wholesaler’s much higher per-item price for each individual product sold.

The second reason is the drop-ship fee. This is the wholesaler’s handling charge for taking all of your shipping and inventory management off of your hands. They handle storage, packaging, labelling, tracking software and working with couriers. This is a perfectly normal industry practice – wholesalers who choose to offer drop shipping services need to recover those expenses and turn a profit somehow.

Market research, as usual, is the key to finding out whether you can drop ship for a profit. While pretty much any type of good could be shipped using this method, some products may be too expensive to make it worth your while. For instance, in industries where your competitors have huge economies of scale, the expenses associated with drop shipping might make it impossible for you to compete with their value.

Drawback #2: Customer Service

Outsourcing any aspect of your business is going to have a unique negative effect on your customer experience. Many consumers, in choosing which businesses to offer their loyalty to, are looking for a personalised experience. With drop shipping, customer service becomes more challenging since shipping and fulfillment is completely out of your hands.

When you handle your shipping in-house, you can ensure that every order is filled accurately, packaged adequately, and shipped out in a timely manner. When outsourcing your shipping, you are still the one who customers are going to blame if your product arrives broken or doesn’t arrive at all.

And that’s not the only way drop shipping can harm your customers’ loyalty. In general, consumers prefer to do business with companies that they feel have a hands-on, personalised approach. They want to feel like the products are coming directly from whom theypurchased. Outsourcing the delivery process can limityour ability to offer a personalised customer experience and discourage some of your customers from returning to your webstore.

In choosing a drop shipping provider, you should test their services by placing an order from them and seeing in what condition and timeframe your purchase arrives, and by calling their customer service to ensure that they are friendly, helpful, and that their order tracking services are adequate.

Despite its drawbacks, drop shipping is an excellent way for a small business to build a clientele, especially before you can afford the staff to do it yourself. But even as you grow, drop shipping can be still be a boon for your business, whether using it for all your fulfillment or to manage specific bulky or hard-to-store products while you keep your most popular goods in-house.

Next week we’re going to take a closer look at handling your shipping and fulfillment in-house, whether you’re just starting out or are ready to make the transition from drop shipping to managing your own inventory. Subscribe to the DalPay Blog for notification about this and other upcoming articles about online retail, and follow us on Facebook and Twitter for the latest news from around the e-commerce industry.

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