Retail returns marketing tactic: a simple model but at what cost?

From apparel to home goods, fitness equipment to mattresses, companies across all retail sectors are offering customers the chance to try a product for a limited time and return it if they are not satisfied. With bold website advertising and email marketing to promote the opportunity of “trying before buying” with seemingly no consequences for the consumer, retailers are set to see a spike in sales – but at what cost?

A simple model set to produce growing results

The try before you buy model is simple: a customer orders a product; the retailer delivers it and the customer has a fixed time period to decide whether they want to return it. And, in most cases, only incurring costs if they decide to keep it.

While try before you buy schemes have been adopted by retailers worldwide, what varies from retailer to retailer is the time given to make a decision. With Amazon Prime Wardrobe, customers have seven days to choose what they would like to keep. Buy something through Klarna, however, which works with ASOS and Topshop, and you have between 14 and 30 days to decide.

Delayed payment is an attractive option for consumers – they receive the convenience of having an online shop delivered to their door and can easily return the items they don’t like, all at no cost to them. Retailers have witnessed an increase in conversion rates with these tactics and have even reported that basket sizes have increased anywhere from 20 to 60 percent, as consumers see purchases as being risk free.

What happens to the inevitable returns?

Retailers and consumers are both embracing delayed payment services – but that’s not to say there aren’t dangers involved. Opening the doors for consumers to return items from the start sets a dangerous precedent for what could come. While there are consumers who will be satisfied with the product and choose to keep it, there will inevitably be those that look to return them.

While retailers will see a spike in sales, they are also opening themselves up to a surplus of returns. In a time when fashion moves incredibly fast, retailers need to be cautious that the items can still be sold at full price if they’re returned – or risk losing out. In the case of fast fashion, the window is very short, making it imperative for a retailer to figure out the fate of that product before it ends up sitting in a warehouse, incurring more costs.

With retailers giving the option to consumers to return huge numbers of items at no cost, they need to reconsider the processes in place for handling and remarketing the products in order to offset the maximum amount of loss.  When it comes to try before you buy, 87 per cent of consumers plan to return several purchases per delivery; although consumers are buying more with these schemes they are also likely to return an additional four items a month – leading to a substantial increase in return costs for retailers.

A smooth and simple process is key

Here’s where a secondary market solution – in the form of a B2B marketplace – can come in handy. By utilising B2B online auction marketplaces, such as the ones hosted and managed by B-Stock, retailers can help offset the money lost in the returns cycle – tapping into an already strong secondary market with an extensive buyer base of interested parties. This not only delivers higher pricing but can also rapidly speed up the sales cycle and automate the sales process.

Surprisingly, 69 per cent of retailers do not currently have technology solutions in place to process this exponential growth in returns, instead they are relying on traditional methods that result in lower prices and longer sales cycles. Applying next-generation technologies, like those mentioned above, to the returns process will have a huge impact on the bottom line and will ensure for a much smoother and simpler process – something that will become necessary for dealing with the inevitable returns of try before you buy schemes.

 

Ben Whitaker, EMEA Director at B-Stock

FeaturesOp-ed

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