Customer Returns as a Marketing Tool

"Zappos' Best Customers Are Also the Ones Who Return the Most Orders"

That's the headline for an eye-opening story in Fast Company, that may change forever how you look at customer returns.

Excerpts:

Some heartening news for retailers who have a high returns rate from their online customers: The more goods a customer returns, the better he or she could be for your business. That's what online shoe store Zappos has found. People who returned half of their orders made the company more money. The store, which was bought last year by Amazon, and touts its free shipping and returns policy, claims  that clients who buy its more expensive footwear have a 50% return rate. But the higher profit margin on those high-end items is worth the added shipping costs.

"Our best customers have the highest returns rates," said Craig Adkins, VP of services and operations," but they are also the ones that spend the most money with us and are our most profitable customers." Zappos' modus operandi is not to give its purchasers the cheapest footwear on the block, but to give them the best service: hence, a 365-day returns policy, and free two-way shipping.

When you think about it, it's a bit of a no-brainer--and something that Natalie Massenet, founder of Net-a-Porter, who earned $80 million from the sale of her high-end online boutique last month. "We owe it to our consumer to offer her various options for how she wants to shop, we shouldn't impose rules on her." And Zappos' marketing chief feels the same way. "Customer service is the new marketing," he trumpeted to Fast Company last month.

Many stores tighten up their returns policy during the holiday season, giving shoppers less time to return unwanted goods, and sometimes even dropping their unconditional returns policy. Noam Paransky of retail consultants Kurt Salmon believes that, once a firm has decided on a policy, it should stick to it. "The generosity of a returns policy needs to be tied to a brand strategy."

As more and more people--some of them most unlikely--turn to online shopping, Zappos' theory is one that more e-tailers should take note of. Although down by 0.2% from the previous year's figures, consumers handed over $129.8 billion to online stores in 2009.

And there's a similar story in InternetRetailer:

Customers on average return 35% of the items they order from Zappos.com Inc., a web-only retailer of footwear, apparel and other merchandise. But there’s a certain group that returns 50% of what they buy.

Zappos loves those customers.

That’s because those consumers tend to purchase from among Zappos’ most expensive lines of footwear, then happily take advantage of the e-retailer’s generous and well-publicized returns policy: Zappos not only will take back any item within 365 days of delivery, but also pays for the return shipping.

And since it costs the same to ship a $300 pair of pumps as it does to ship a $30 pair of sandals, the Zappos policy of winning over shoppers with its returns policy has helped to bring in high profit margins on many of its orders, says Craig Adkins, vice president of services and operations at Zappos, which was acquired last year by Amazon.com Inc.

“Our best customers have the highest return rates, but they are also the ones that spend the most money with us and are our most profitable customers,” Adkins says.

Overall, a returns policy can help your company's image. And making it easy for customers to return items has not led to a corresponding increase in the number of returns.

“We’ve not seen empirical evidence that, as the ease of making returns goes up, the returns rate also went up, but we have seen that it creates a positive experience for the retail brand,” says Noam Paransky, senior manager and logistics expert at retail consultants Kurt Salmon Associates.

When a customer returns something, it's another chance to build -- or break -- the relationship you've already invested time and money in. (Go look up your acquisition costs. I'll wait. Back? Good. Expensive, isn't it?)

In a world of faceless service online and incompetent service offline, a return is your opportunity to talk face-to-face with your customers, solve their current problem, and earn the right to solve their next problem.

Solving problems is why you get paid, remember?

So, your return policy can either resell or repel. Pick one.

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