With numerous platforms and multiple channels to choose from, the competition amongst online marketplaces and e-commerce sites can be pretty intense. To attract more shoppers, many of these platforms implement customer-centric policies such as free shipping, hassle-free returns, and guaranteed refunds.
While these policies enhance the shopping experience of buyers, they pose challenges for sellers. Returns, in particular, can have adverse effects on businesses, including financial implications and operational complexities.
Return vs. Replacement vs. Refund
Before we delve deeper into the real impact of returns, let’s first establish a clear understanding of what returns, replacements, and refunds are. Although often used interchangeably, these three terms are distinct. Understanding these distinctions is crucial for sellers as they navigate managing customer expectations and learn to handle all three efficiently.
Returns typically refer to buyers sending back products they are dissatisfied with or no longer want. This could be due to reasons such as receiving a damaged item, incorrect sizing, or simply changing preferences. When buyers return products, they expect them to be either replaced or refunded. When an item gets returned frequently, it gets flagged in the Amazon marketplace.
Replacements involve sending a new, identical product to the buyer to address a specific issue, such as a defective item. Refunds, on the other hand, entail reimbursing the buyer for their purchase, usually due to an irreparable issue or a desire for a complete refund without replacement.
On Amazon, buyers can return products for any of the following reasons:
- Item doesn’t work
- Item arrived too late
- Better price available
- No longer needed
- Bought by mistake
When a product is returned, the customer gets a refund. The seller, on the other hand, loses much more than the revenue from the product. They also lose the FBA fees and associated expenses paid during the sale. They also often shoulder the entire cost of the return process.
What Happens to Returned Goods
Amazon offers four options for returned goods: Return to Seller, Disposal, Liquidation, and Fulfillment by Amazon Grade and Resell.
Return to Seller
In this scenario, the returned item follows a complex path. It goes back to the Amazon warehouse, usually traveling via truck, plane, or cargo ship. From there, it is sent back to the original seller, undergoing processing again. Finally, it may be sent to another Amazon warehouse for sorting and repacking before being sold again.
This is a more common fate for returns that cannot be resold. Instead of being returned to inventory, these items are either donated to charitable organizations, recycled, or sent for energy recovery.
Some sellers opt to use liquidation marketplaces to auction off their unwanted inventory by the pallet or truckload. These items usually find their way to flea markets and used goods sites like eBay and Craigslist.
Fulfillment by Amazon Grade and Resell
For now, this option is available by invitation only. Returns are carefully inspected and graded by Amazon as New, Very Good, Good, or Acceptable. Based on the grading, the items are resold in special sections of the site, such as Warehouse Deals for used goods, Amazon Renewed for refurbished items, Amazon Outlet for overstock, or Woot! for daily deals known as “bag of crap.”
Whether on Amazon or other marketplaces, once returned goods are received by the seller, they embark on a journey that impacts both the financial bottom line and operational efficiency of sellers. In general, they go through the following processes:
Upon receiving a returned item, sellers must assess its condition to determine if it can be resold. This process involves carefully examining the product for any damage, missing components, or signs of use that may diminish its value.
Sometimes, returned products may require refurbishment before they can be resold. Sellers will need to invest time and resources in repairing any damage, cleaning or sanitizing the item, and repackaging it for resale.
After inspection and/or refurbishment, returned goods are reintroduced into inventory. However, this reintroduction is not without costs. Restocking products consumes valuable time and resources, as well as occupies warehouse space that could be allocated to new inventory.
The Real Impact of Returns
The impact of returns on Amazon and other marketplaces is multi-faceted and can significantly affect the financial stability of sellers, consumer trust, and environmental sustainability. In this section, we go through some of the adverse effects of product returns.
1. Revenue loss and other financial consequences
According to a 2022 survey by Appriss Retail and the National Retail Federation, U.S. retailers lost $816 billion in sales due to product returns. The same survey indicates that for every $100 in returned merchandise, retailers lose $10.40 to return fraud. Whether due to fraudulent or valid reasons, these returns have a significant impact on the profit margins of sellers. The costs associated with inspecting, refurbishing, and restocking returned goods can quickly erode profits, especially for small businesses with limited resources.
Aside from losing revenue, sellers also risk losing inventory due to returns. With over 40% of Amazon returns deemed unsellable and not eligible for resale on Amazon, the losses can be staggering for sellers.
2. Additional operational expenses
Handling returns requires a dedicated customer support team capable of efficiently managing inquiries, processing returns, and resolving issues. This entails additional labor costs and training efforts for sellers.
3. Lower search rankings
Returns have a negative effect on the product listing in Amazon’s algorithm, which can impact search rankings. This can make it more challenging for sellers to gain visibility and attract new customers.
4. Warning on product listings
If the return rate of a particular product exceeds the standard defect rate, a warning may appear on the listing that cautions buyers against purchase. This warning can deter potential customers and decrease sales.
5. Poor ratings and bad reviews that impact brand reputation
Frustrated customers often leave bad reviews along with product returns. Negative experiences with returns, such as poor customer service and issues with refunds, can compound the problem. The more dissatisfied the buyers are, the worse their ratings and reviews become. Negative feedback affects the perception of future buyers and can severely impact sales growth.
6. Potential account restrictions and suspension
If return rates exceed the acceptable threshold, a seller’s account may be affected. This can result in the restriction of some selling privileges, account suspension, and suppression of offers. In extreme cases, it might even lead to account deactivation. On Amazon, sellers must maintain an order defect rate below 1%, which is calculated from the negative feedback rate, guarantee claim rate, and credit card chargeback rate.
7. Negative environmental impact
Returns not only impact sellers financially but also have environmental consequences that affect everyone. You see, not all returned items can go back on the shelves and instead have to be disposed of. Most unsellable returns are donated to charitable institutions, recycled, or sent for energy recovery, but there are also items sent for incineration or landfill dumping. From return shipping to restocking or disposal, the entire returns process contributes to landfill waste and carbon dioxide emissions.
Top Ways to Reduce Returns
While it may be impossible to eliminate returns entirely, sellers can adopt several strategies to minimize return rates and mitigate their impact. Let’s explore some of the most effective approaches that can help maintain business sustainability and profitability.
1. Implement stringent quality control measures.
The first step you can take to minimize product returns is to be proactive and enhance your product quality control. Stringent quality control measures are vital to prevent defective or subpar products from reaching your buyers. Implement comprehensive testing and inspection procedures to reduce the likelihood of returns caused by product flaws, missing parts, appearance, quality, and other issues.
2. Provide accurate product descriptions.
Many returns occur when buyers receive products that differ from their expectations due to unclear or misleading information. Poor fit and size remain the top reason for returns in a 2022 consumer survey by Narvar, with 45% of respondents indicating it as the reason for returning a product they have bought.
To help your buyers make informed decisions and minimize the likelihood of returns, include accurate details such as dimensions, weight, size charts, materials, warranty information, and usage instructions in your product descriptions. It also helps to have high-quality images that showcase the product from multiple angles and highlight its features.
3. Set competitive pricing.
Pricing can play a crucial role in reducing returns. Some marketplaces offer buyers the option to return an item if they find a better price elsewhere, making it essential to set a competitive price that matches those in the market.
Conduct market research, analyze competitor pricing, and adjust your pricing strategy accordingly. By offering a compelling value proposition and matching the quality of your product with a competitive price, you can reduce the likelihood of returns driven by customers seeking better deals.
4. Streamline packaging and shipping.
Inadequate packaging can result in damaged goods that lead to product returns. The same goes for late shipments. To minimize this risk, prioritize secure packaging materials and optimize the shipping process. By packaging products securely and selecting reliable carriers, you can reduce the chances of your products’ quality being compromised during transit. With your products reaching the buyers in optimal condition and at the fastest possible time, your return rates are bound to be reduced.
5. Clearly state return policies.
Clearly stating return policies helps manage customer expectations and reduces returns prompted by buyer preferences or changes of mind. With Amazon’s free returns policy, some customers may feel encouraged to return products that are in good working condition but simply don’t suit their taste. By clearly communicating return guidelines and specifying that full refunds are only available for eligible products returned in new and unworn condition, you can set appropriate expectations and minimize unnecessary returns.
6. Monitor your Returns Analysis page
Amazon provides a Returns Analysis page that helps sellers identify and act on product listings experiencing return issues. Monitoring this page allows you to track returns for specific products and identify any patterns or problems that may contribute to higher return rates. By promptly addressing these issues and making necessary improvements, you can improve customer satisfaction and keep your returns volume low.
7. Leverage technology to provide premium customer support.
Investing in responsive and knowledgeable customer support can significantly contribute to reducing return rates. However, the only post-purchase support possible in most marketplaces is to reply to buyer messages as quickly as possible. One way to provide premium customer support is by leveraging technology such as those offered by On-Site Support.
On-Site Support is an innovative platform with advanced capabilities for automating routine tasks and providing flexible solutions for exceptional customer support. It can be integrated with Amazon, Shopify, and other online marketplaces for convenient customer support management across multiple channels and platforms.
With its collaboration with Amazon, sellers can now add a Get Product Support button that redirects customers to an On-Site landing page. This dedicated page offers resources such as live chat support, QR code inserts, product manuals, and ticketing forms. For sellers, the site gives the ability to handle buyer messages and tickets without leaving the On-Site platform. This means you can retrieve order data, issue replacements or refunds, mark tickets as no response, and do other tasks within On-Site. With the capability to provide prompt and personalized customer support, you can resolve issues, answer questions, and minimize returns.
8. Utilize customer feedback.
Actively seeking and monitoring customer reviews and ratings can provide invaluable insights for both sellers and potential buyers. Monitoring customer feedback allows you to identify common pain points and areas for improvement, this also enables you to refine your products and improve customer satisfaction.
On the buyers’ end, customer reviews can help them make better-informed purchasing decisions. It allows them to check whether the product is suitable for their needs and if they meet their expectations. This reduces the likelihood of returns. In fact, 40% of consumers in a pulse survey said that reading customer reviews would reduce the number of returns they make.
Minimize Returns to Maximize Business Growth
The challenges posed by product returns in online marketplaces are significant. From the financial consequences and operational expenses to the potential damage to customer trust and reputation, sellers have to navigate a complex landscape. However, by embracing targeted approaches and implementing sound strategies, sellers can effectively tackle return rates and foster a more efficient and trustworthy marketplace environment.
Isaac Hadriye is an entrepreneur & veteran eCommerce seller. He has founded multiple software companies in the eCommerce space, including onsitesupport.io. Isaac is currently leads Onsite Support as CEO.