#3 Reducing Returns

Today, I'm revealing how one retailer slashed return rates by 20%, boosting profits significantly—simply by identifying and excluding habitual returners from their marketing campaigns.

High return rates are usually due to poor customer segmentation rather than sizing or product quality

There are thousands of tips on how to reduce return rates, but most of them completely ignore the main reason:

Bad customers.

There is a reason why some countries have much higher return rates than others.

Let's take Germany as an example. At 64.3%, Germany's return rate is almost three times higher than the U.S. (24.4%) and twice as high as the global average of 30%.

Is this because Germans have poorer product descriptions, don't get the sizes right, or can't read size charts?

Certainly not.

For years, big players like Zalando (Germany's e-commerce giant in the fashion sector) have been educating the market with the slogan "Schrei vor Glück oder schick's zurück" which means "scream for happiness or send it back".

Eventually, they themselves realized that this was not the smartest slogan and banned "send it back" from the slogan.

But what is my point?

Returns have a massive impact on your brand's bottom line. But if you really want to work on it, you have to work on the quality of the customer you are buying and trying to reactivate. That is by far the biggest lever.

When we talk about 24.4% returns in the US, it does not mean that a customer returns every fourth product. It means that typically 80% of customers never return, 20% return everything, and 5% return occasionally.

That's the problem with looking at averages instead of distributions.

A large proportion of customers in surveys say that size is the reason for the return. But this is not accurate. In particular, people who constantly return everything give this as the most common reason to hide their fundamentally bad customer behavior.

So what can be done?

At RetentionX, we have taken a close look at this problem and have seen excellent results:

1. Segment bad customers: Create a segment of customers who either have a return rate of over 80% across more than 1 order, or have only 1 order with more than 1 item and a return rate of 100%.This ensures that customers who have had size changes are not counted as bad customers. In RetentionX this is done in a minute.

2. Exclude these customers from your remarketing. These customers only cost you money. If you now offer them discounts via newsletter, you are limiting the potential profit from a target group that is most likely only costing you money anyway. RetentionX can push the segment to Klaviyo, Meta and all other remarketing channels.

3. Acquire fewer bad customers. Create a lookalike 1% of these customers. Exclude BOTH (lookalike and bad customer audience) in your acquisition campaigns. Ideally as Audience+ targeting so that the audiences are used as signals.We were able to reduce return rates by up to 20%.

Using Customer Feedback to Improve Product Quality and Reduce Returns

Customer feedback is a goldmine for improving product quality and reducing returns – here's how to harness it.

1. Collecting Feedback: Send post-purchase surveys to customers asking about their satisfaction with the product and areas for improvement. Ask for information about their height and size.

2. Analyzing Feedback: Analyze survey responses and product reviews, looking for patterns in customer complaints. For instance, if multiple customers of a certain height mention sizing issues, it indicates a need for better size guides or product adjustments.

3. Implementing Changes: If customers frequently return a product due to poor fit, consider adjusting the sizing or providing more detailed sizing information. A fashion brand could use the customer data gathered in 1) to add sizing charts and fit tips to address this issue. Indicate that a particular product was too small for people of a certain height or size.

4. Communicating Updates: Use email campaigns and website updates to let customers know about the changes you've implemented. For instance, "Thanks to your feedback, we've improved the fit of our best-selling jeans!"

Strategies for Encouraging Exchanges Instead of Returns

Encouraging exchanges instead of returns can save costs and retain customers – here's how to make it happen.

1. Incentivize Exchanges: Provide a discount on the exchanged item or offer free shipping for exchanges. Brands like Zappos use this strategy to encourage customers to exchange products rather than return them.

2. Simplify the Exchange Process: Provide a prepaid return label and a user-friendly online portal for processing exchanges. Use tools like Happy Returns or Returnly to streamline this process.

3. Communicate Benefits: Highlight the speed and convenience of exchanges on your returns page. For instance, "Exchange your item and receive the new one in as little as 3 days, hassle-free!". Sell it as "free shipping" on your next order because customers can add additional items to their exchange.

4. Personalized Recommendations: Use RetentionX to suggest additional products that match the customer's preferences. If a customer returns a dress due to sizing, recommend similar dresses in a different size and additional matching products. Finding an additional item will positively impact the likelihood of an exchange instead of a return.

Summary

I know that’s a lot to take in! I’ve been in the same position—feeling overwhelmed about where to find the data, how to get started, and how to embed an LTV-driven mindset into my teams. That’s why we built RetentionX. It was my #1 internal tool as a brand operator to turn things around before launching it as publicly available software. All of the strategies above can easily be analyzed and implemented with RetentionX.

If you enjoyed this article and want to implement this mindset for your brand, don't hesitate to book a call with me below.