Unlocking the Value in Return Transactions

By Tom Rittman, vice president of marketing, The Retail Equation

With fraudulent and abusive returns totaling $15.5 billion annually, many retailers are implementing stricter policies - unfortunately including some policies that unintentionally alienate good customers. Because returns and exchanges are often perceived as a negative part of the retail environment, accepted out of necessity and customer service pressure, they are often left unexamined.

Upon further examination, however, retailers have come to appreciate that customer returns may hold the key to gaining incremental revenue. After all, the customer is already in the store and has their return money in their hands, waiting to be spent. Why shouldn't it be spent in the store where they just returned an item?

To better understand and leverage these opportunities, retailers are turning more frequently to the concept of 'return optimization.' Rather than risk alienating a customer who may be disappointed about having to return a purchase, retailers can improve the experience. Doing so successfully will win customer confidence and loyalty at a critical point in the relationship. Return optimization examines customer data, trends, purchase history and products to discourage abuse and fraud, while utilizing predictive behavior and retailer-specific business objectives to encourage good customers to continue their shopping experience via instant incentives.

Enhancing Customer Satisfaction
There are two aspects to the return process that frustrate consumers: Overly strict return policies that discourage them from patronizing a retail establishment, and the perception that return policies are subjective and at the whim of the retail employee. To help combat both of these, progressive retailers have implemented Verify-1, part of The Retail Equation's suite of solutions. By using this industry-leading product, retailers have access to a customer's transaction history, return history, and buying preferences. This information is then fed through a series of filters which determines whether or not the return is valid and should be accepted, streamlining and objectifying the decision-making process. Retailers using Verify-1 achieved a five to 12 percent overall reduction in returns without negatively affecting customer service ratings.

Removing or alleviating customer frustrations places them in a position to consider spending their return money immediately. Offering them the appropriate incentive to do this is a critical element in generating incremental return revenue. Retailers who have optimized their return transactions through Return Rewards - a solution to achieve revenue lift by issuing intelligent incentives following legitimate returns and exchanges - have increased customer conversions while reducing fraud and abuse, resulting in incremental sales increases of more than 1%. Shoppers who are already in the store making returns are encouraged to stay, shop and spend the money they just received back from the return.

The Economic Imperative
As the nation's economy continues to struggle, retailers are becoming even more vigilant about maximizing the revenue potential from every shopper that enters the store. It would not be unexpected for a customer to purchase something, then realize upon returning home that he or she cannot afford the item, and return it. Such is the nature of these changing economic times. And as consumers purchase fewer and fewer items during difficult times, every transaction - be it purchase or return - becomes increasingly important to retailers. And every customer becomes increasingly important, which is why it is critical to embrace return policies that are not only good for retailers' bottom line, but also those which help retailers further establish relationships with their customers.

Return optimization gives retailers a real opportunity to enhance their bottom line and increase customer satisfaction. Instead of simply managing returns as usual, The Retail Equation can help point out a better way to minimize fraudulent returns and customer frustration, while maximizing return transactions - untapped sales value.

Tom Rittman is the vice president of marketing for The Retail Equation and is responsible for the organization's branding, demand generation, marketing research and communications, as well as product marketing. For more information on The Retail Equation, visit www.TheRetailEquation.com.
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