Retail Equation's Return Warning System Boosts Sales While Stemming Fraud

"Fringe consumers" are those marginally profitable shoppers that push the edges of a retailer's return policy —   every retailer has them and tries to pinpoint ways to make them a more valuable customer. The Retail Equation recently worked with a nationwide retailer to determine the effect a return warning had on the net sales and return rate of these consumers.

Through The Retail Equation's Verify® return authorization solution, the company monitored everyone who received their first warning between Aug. 15, 2014 and Nov. 15, 2014. These warnings are generated through Verify, which compares variables such as purchase and return frequency, dollar amounts and/or time against a set of prescribed rules that form that retailer's return policy. A warning is issued if the consumer's behavior exhibits habits that are inconsistent with the retailer's return policy. In this case, 1,200 warnings were issued during the three-month period.

The company then monitored the purchase and return activity of the 1,200 customers for 120 days after the warning was issued to determine deterrence. This was calculated by comparing the after-warning activity to the previous activity (since TRE accepted the warned return).

Interestingly, the net sales after the warning were actually higher than prior to the warning. Return dollars were reduced by 60 percent while net sales increased by 12 percent. The following table reflects the data for 1,200 customers for 120 days after the warning.

  Net Sales Return Rate
Before   76.8%
After +12% 54.4%*

"Our solution was developed to detect and deter return fraud; however, we continually identify ways to use our technology to help retailers improve net sales and reduce return rate," said Adi Raz, senior director, data sciences and modeling at The Retail Equation. "This study is an excellent example of how The Retail Equation, using its patented warning process, can ultimately change consumer behavior for our retailer clients."

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