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Why personalized returns are the future of ecommerce returns management

illustration of a person packing shoes into a shipping box to return them

Personalization in ecommerce is now commonplace at multiple touchpoints across the shopping journey. From personalized product recommendations and welcome emails to relevant offers and retargeting ads, ecommerce brands are working hard to distinguish themselves from competitors by treating every customer as an individual.

However, this usually ends the moment an order has been placed.

If shoppers want to return or exchange a product after receiving their order, they have to work within the confines of an inflexible ecommerce return policy that gives the same terms to every customer – regardless of their value to your business.

The idea of one-size-fits-all product recommendations or display ads is laughable in a time when our interactions with customers are increasingly targeted. So, why do we do this with how we manage returns?

As it turns out, there’s a growing number of ecommerce brands asking this very question. In this post, we’re going to dive into the emerging trend of return personalization and how it can help your online store retain revenue and increase customer satisfaction.

What are personalized returns?

Personalized returns are an approach to returns management where brands offer a more generous ecommerce return policy to long-term, loyal shoppers with the highest levels of customer lifetime value.

The purpose of personalized return policies is to reinforce positive shopping behaviors in your customers, such as joining VIP programs, making frequent purchases, or placing high-value orders. By rewarding brand loyalty with perks like longer return windows or free return shipping, customers are much more likely to shop with your business in the future.

When implemented properly, personalized return policies result in higher levels of customer satisfaction with the return process, as well as lower return rates and more revenue being retained by merchants.

The value of personalized returns

Today’s customers have considerably higher expectations of the returns process than they did in the past. From self-service return portals to the ability to return online orders in-store, customers want returns to be easy and seamless. Despite this, nearly three-quarters of consumers say that retailers aren’t offering a satisfactory return management process.

With this in mind, what extra value does a personalized return policy provide?

To understand why return personalization matters, let’s take a look at an example:

Customer A and customer B both make a purchase from your online store. Both decide that they would like to return some of the items they’ve purchased. 

Customer A is a first-time customer who wasn’t shopped with your brand before. Customer B is a member of your VIP loyalty program who frequently places orders.

A standard return policy cannot differentiate between these two customer segments. Both customers would have the same return window, the same return shipping policy, and the same access to store credit versus a full refund.

However, it makes little sense for brands to treat loyal returning customers the same way as first-time customers who have no established spending patterns. 

At most brands, 80% of revenue will come from just 20% of customers. In sum, businesses need to maximize customer retention at all costs if they want to build a profitable and sustainable business. This is where treating all customers equally is not to your brand’s advantage. 

When no-questions-asked returns have become the norm, there is intense competition amongst brands to retain customers. A standard return policy that treats every customer the same does little to entice customers to purchase again.

Plus, if your top 20% of customers have to abide by the same return rules as a one-time-only customer, this doesn’t show much goodwill or appreciation. According to Accenture, almost half (48%) of consumers expect specialized treatment from a brand for being a good customer.

Despite this, just 10% of retailers currently have a personalized return policy in place, according to a study by Narvar of over 200 major retailers and D2C brands.

By rewarding loyal customers with more generous or flexible return conditions, they’re far more likely to shop with you again instead of defecting to another retailer. This boosts your customer lifetime value and creates happier, more engaged customers with a high intent to repurchase

What does a personalized return policy look like?

Longer return windows

Most of us are familiar with the standard 30-day return window, but this does nothing to drive customer urgency to make returns and exchanges. In the fast-moving world of ecommerce, this is a problem. If you’re selling highly seasonal inventory, a 30-day return window can easily render some SKUs unfit for resale, resulting in dead stock that is extremely costly to your business.

By offering varying return windows to different customer segments, you can positively shape customer behavior.

For example, you can reserve 30-day or longer return windows for only your most loyal customers, such as VIP members who have the highest intent to repurchase. For everyone else, you could offer a 14-day return policy.

However, you don’t want your policy to be too inflexible, lest it put consumers off from purchasing. A good middle ground is to offer free returns for the first 14 days, and then charge a fee for the remainder of the return window. This approach, used by the likes of Lululemon and Best Buy, offers customers flexibility while also encouraging speedy returns for better reselling opportunities.

Free return shipping

It’s understandable why consumers love free shipping for returned items. But this is a huge financial burden for merchants in the era of high return rates. According to the Nation Retail Federation, retailers got back about 16.6% of the total merchandise sold in 2021 – 10.6% in 2020.

How often your business is paying for return shipping will depend on your chosen return policy. Some brands only cover return shipping costs in select circumstances, while others will include a pre-paid shipping label with every order on the off chance that a customer wants to make a return.

You can also reserve free return shipping for your most loyal or VIP customers as part of a personalized return policy. Why? Because this group of customers is highly likely to purchase from you again, meaning that the cost of covering return shipping can be easily offset against future ecommerce orders. It’s a highly desirable perk that removes friction from the post-purchase experience, providing an incentive for other customers to sign up.

In addition, consider offering return shipping to regular customers if they choose to exchange rather than return items. Many return policies don’t distinguish between returns and exchanges, but there’s a world of difference in how it affects your revenue. Exchanges are a retailer’s first line of defense to avoid losing sales. So, why penalize customers wanting to make exchanges by charging them for the privilege?

ThredUp and Dollskill take an alternative approach of covering return shipping if customers accept store credit, rather than a full refund. These types of positive reinforcement all help to boost your exchange rate and lower lost revenue.

Courier pick-up service for returns

Even loyal customers can feel typecast as ‘bad customers’ when they decide to return something. Adding a white glove approach to how you handle returns from high-value customers is a great way to showcase your brand’s commitment to providing convenience and stellar customer service – even in a situation that isn’t necessarily positive for your brand.

For example, you could offer a pick-up service for returned items from high-value customers located in certain metro areas. This adds a localized layer to personalized return management that helps to build customer loyalty. Levi’s is currently piloting a next-day pickup service in the Bay Area that it hopes to roll out in other major cities in the future.

How to implement a personalized return policy

So, you know what a personalized return policy looks like. But how can you actually introduce one at your business?

There are two main ways that brands can go about offering personalized returns to their customers:

A VIP or membership program

Membership or loyalty reward programs offer ecommerce brands the easiest way to personalize their return policy by segmenting their highest-value customers.

For example, tiered loyalty programs with escalating levels of benefits enable you to allocate different return policies based on how much your customer is spending on a yearly basis.

a table of returns and exchanges for DSW loyalty members and non-members

DSW’s loyalty VIP program offers a different level of flexibility depending on which tier the customer is on. The free-to-join VIP Club tier allows free returns in-store and offers a 90-day return window, while Gold and Elite tiers also get free return shipping. A 365-day return window is reserved only for the Elite tier of the program, who must spend $500 annually to reach this tier.

By reserving the most generous and flexible return conditions for your highest tiers, you get to reward positive spending and provide a major incentive for other VIP members to ‘level up’ to higher tiers.

An alternative to managing a tiered program is to set up a paid or premium membership program where customers pay to access different perks, such as free return shipping or longer return windows. The advantage of this approach is that customers are far more likely to use perks they’re paying for; According to McKinsey, paid loyalty program members are twice as likely to spend money after subscribing compared with members of free programs – and 62% more likely to spend more with each purchase!

Using sales and return data to segment customers

If you don’t currently have a VIP program and aren’t interested in setting one up, there are other ways of segmenting your customers to set up personalized return policies.

For example, you can use historical sales data to identify who among your customer base has the highest levels of customer lifetime value. This includes both high-spending customers and those who place orders frequently but for lower amounts. Another option is to look at return activity to see which customers have returned orders rarely or not at all.  These are all desirable behaviors that your business wants to encourage through more flexible or generous return policies.

In an ideal world, it would be possible to offer all customers unlimited, no-questions-asked returns that put even Amazon to shame. But as return rates creep up and expectations rise for faster, more seamless return processes, this hurts your profit margins and puts considerable pressure on your return processing capabilities. 

Personalizing your return policy offers a smarter, faster way to optimize returns and encourage return behaviors that are favorable to your business, such as choosing exchanges over returns and returning merchandise quickly. Moreover, personalized returns offer a powerful incentive for customers to continue shopping with your brand and leverage these perks, resulting in higher revenue and happier customers.

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