Reverse logistics: Return pricing strategies and their effects on the return process.
A crucial part for an online store to function well and to have success is the delivery of products to the customer. But 30% of the time products sold online are returned. That’s why reverse logistics, or, in other words, returns, are becoming equally important for an eCommerce.
In previous articles, we’ve covered the most important rules for your return policy and what are the most common causes for a return – and perhaps more importantly, how to learn from them.
However today we will cover a more practical point of returns: prices. Specifically, the different pricing strategies to take into account, and how these strategies influence the return process.
Return Pricing Strategies
As with shipping prices from the store to the customer, there are three fairly common strategies for an eCommerce to fix their return prices.
- Free Returns
- Returns paid partially by the Online Store
- Returns fully paid by Customer
One of consumers’ favorite words is free – whose isn’t actually?! And when this word is used in both shipping and returns, it’s fantastic.
According to a Walker Sands’ study, offering free shipping is one of the most valued checkout options for consumers and in recent years it has become one of the main incentives to buy online. So it’s no wonder that “free shipping” has become a great marketing tool.
But this is not a term that you only want to hear in regular shipments; you also want it in returns – 79% of consumers expect returns at no extra cost.
However, in order to offer free returns there are two options. Either your online store absorbs the costs, or raises the prices of the products to cover these costs. And both these options can make a dent on your profits.
The first one, if you absorb the costs, you will decrease your profit margins. This may work for a company with large margins. However, for a company with lower ones, this method can become very complicated in the long run.
However, if you increase the prices of your products – depending on the characteristics of the market and your competition – it could harm the competitiveness of your store.
Returns paid partially by the Online Store
With this strategy, the cost of returns is paid in part by the consumer and partly by your store.
To do this, firstly you’ll need to calculate the average price of your returns. Next, you need to decide the percentage of your margins that you are willing to ‘give up’ in favor of offering lower return prices. Finally, you just announce the price that your customers will pay in your return policy – after all, 67% of consumers online check the return page before making a purchase.
Returns fully paid by the Customer
Finally, one of the most common pricing strategies for returns is fully charging it to the consumer.
In this method, since your online store only provides the shipping label, the amount that the customer will pay will depend on the shipping company.
Impact of different pricing strategies on the return process
Your return process will be quite different depending on the price method you choose to test.
For example, if you ‘offer’ the return to your customer, you can send the prepaid return label together with the order. This saves time because in doing so, customers won’t have the need to contact your store for the label. Which means that you won’t have to spend your time responding and sending this label.
And there aren’t only advantages for your store. By adding the label right away, you make the return process easier for your customer because he just needs to stick the label on the box and go to the post office, without needing to contact you.
When the return price is divided by you and the customer, it’s advisable not to add the return label to the order. Although you need to clearly communicate how the return process works and who pays for it, there are consumers who don’t check return policies prior to a purchase. Or they simply don’t remember what they read. So, if you add the return label to the package, customers might assume that the return is free. And as a result, when they find out they need to pay for it, they may feel cheated and lose trust in your online store.
To avoid this situation, simply explain clearly in your return policy that customers need to ask for the label, and that they will pay part of the return. And because it’s better to be safe than sorry, you can always explaining the return process and how you need to contribute to the payment when the consumer contacts you about the return.
Finally, if it is the consumer who fully pays for the return, it’s essential that you communicate this clearly and concisely in your return policy. And just like in the previous process, when they contact your online store because of a return, you should reinforce this idea and the return process itself.
Conclusion: How your pricing strategy affects your return process
The pricing method you choose for your returns will influence the whole return process because it may affect two important elements of your business: your management and the communication with your customer.
By sending or not sending the return the label along with the package, for example, you add or remove processes to your day to day. On the other hand, in a way this also changes the control you have over that post-purchase moment. Practically: by offering free returns and sending the label right away, you gain time by not having to deal with customers. On the other hand, you only know that there was some problem with the order when it arrives back into your hands.
As far as communication goes, what changes is not only the message but also its clarity. Certainly clarity is important at any time of purchase, but if you offer free returns, there will hardly be any misunderstandings.
However that may not be the case if the customer is fully or partially responsible for the cost of the return and is not fully aware of it.
This experience can lead the consumer to behave differently with your online store – not only in the return of the product itself, but also in potential future purchases.
And that is why it’s crucial that you communicate to your customer clearly and precisely how the return process unfolds, and whether it’s necessary for them to pay anything. This is the only way to ensure a relationship of transparency and trust with your consumer.