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How to Implement a Returns Strategy on E-commerce Orders

Returns can be an opportunity for online retailers to create and sustain a loyal base of customers. Although it does add costs to the online retailer’s’ business, 51% of customers say that they avoid shopping at online retainers that have a strict returns’ policy. In surveys conducted on online customers in 2018, 62% of customers would buy again from a brand that offered free returns and exchanges and 69% and 67% are deterred from online purchases if they were charged for return shipping and restocking fees respectively. On an average, an e-commerce retailer faces 20-30% returns of its total transactions as opposed to an approximate 9% returns for a brick-and-mortar retailer so a returns  strategy is critical to the success of an e-commerce business.


The top two reasons why customers return the product is (1) the product does not match the description and (2) the product is faulty or damaged. Around 72% of returns in fashion product categories stems from the first reason. Other common reasons are poor quality of product, the customer ordering more than required of the same item, having issues with delivery, no longer needing the product or serial returns. There has also been an increase in returns fraud in e-commerce sales; where a customer makes a purchase and intentionally claims returns to benefit monetarily from the process. This happens with clothes bought online when some ‘customers’ purchase the product, use it for an occasion and then claim returns for the product. An online retailer needs to build a comprehensive yet convenient return policy to counter such reasons for returns. 

As mentioned earlier, a flexible returns policy attracts customers and creates a loyal base. It is also a powerful market tool, can minimize costs and lower cost of customer acquisition for the e-commerce business. In effect, a returns policy is critical to e-commerce. The returns policy depends on the type of product and business the retailer has. Some of the key aspects that needs to be covered in a a good policy are: 

1) whether the retailer is offering returns only and/or exchanges 
2) whether there is free shipping on returns or some percentage will be charged for return shipping (the policy would differ for domestic and international returns) 
3) guidelines on what the condition of the product should be 
4) describe the return process so that the customer can follow it 
5) whether the returns can be made by posting it from the nearest post office, returning it to the nearest store or a pickup offered. 
6) a time limit for returns, i.e.30 days or 60 days or 90 days 
7) whether to include a shipping label for returns or not 
8) finally, disclosing the time to process the return and resolve the issue, which could be reshipping the order or providing store credit. 


A returns policy has to balance itself in being simple and clearly visible to the customer but at the same comprehensive in order to protect the online retailer and the customer from potential ugly disputes and dissatisfaction. 

When pricing returns, the e-commerce business has to capture the costs involved. It may seem that transportation, which includes shipping, packaging and labelling, is a significant cost of the return process. However, it is damaged goods and costs of reselling the goods that usually exceed the price of the product. There is also labour involved in return shipping, inventory management and customer service. To factor returns in an e-commerce retailer’s business model, if an online retailer was selling $50,000 per month, the business can budget for 30% returns, or additional costs of $15,000. This can be spread across the entire product list or over specific categories where the retailer has identified more returns. As the e-commerce business gains more experience and continually refines its returns policy, returns rate will drop and boost the e-commerce platform’s revenues and customer base. 

Returns can be minimized with high quality images and detailed descriptions, accurate size guides and tools on product pages, optimized packaging and responsive customer service. Another important consideration is implementing a software tool that manages returns, also known as returns-management systems, which also tracks patterns in products and customers and would ultimately help in budgeting for returns in the business model and product pricing. It was found that 52% of distribution center managers do not have theresources to manage returns and 44% consider returns as a major challenge in their operations. A strong partnership with shipping services can reduce costs and make inventory management more efficient and more importantly, support in sustaining a pleasant customer experience. 

To conclude, ignoring the development of a returns strategy can negatively impact the e-commerce platform. Proper research, communication and partnership with adequate resources are required in order for the business to succeed and one way to learn is to observe best practices from successful platforms of similar online retailers like Zappos and Ikea.

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