Even if low in number, unnecessary returns present a considerable potential for revenue growth in e-commerce. A return is unnecessary when it is based on an avoidable decision error on the part of the customer.
In this article, I show how online marketing can help reduce returns. Here are 5 tips to optimize your online shop through online marketing to avoid returns.
Returns are an important value proposition in e-commerce. Because of legal requirements, online retailers already offer their customers the opportunity to change a purchase agreement and to send back goods without divulging the reason. Leading online retailers have gone far beyond the legal requirements and have extended the return deadline, as well as absorbing the sending costs of the return for the customer. And these companies promise to do so. At least approximately 44% of online retailers polled have a return rate of more than 2%. And for nearly 20% of online retailers the return percentage is greater than 6% (Source: IfH Köln/ECC/EBay, 2016). Some fashion shops can have extreme return percentages of about 50%, but this is the exception rather than the rule.
In order to understand the role of online marketing in returns, it is important to examine the reasons for returns.The following overview with data from ibi Research shows that the majority of reasons for returns are based on decision errors by customers:
Figure 1: The most frequent reasons for returns
Summary of reasons
Together, these account for nearly 40% of the named reasons. From these returns, it can be assumed that the expectations of customers and the actual delivery do not match. And the creation of expectations is considerably influenced by online marketing.
Online marketing is not usually considered to be a core issue when it comes to minimizing returns. Even with fashion items, the reasons for return lie predominantly with the item itself and with it not fitting properly. Logistics, too, can lead to returns due to too long delivery times and damaged goods. But there are also measures that can help with reducing returns with comparatively little expense in online marketing.
The most important measure is to create an analytical connection between returns and online marketing. First, you should take the average return ratio according to the most important key indicators into account. A simple example with the important key indicator, cost per order, shows what effect this can have. This can be determined by dividing the average CPC by the conversion rate for any given item:
For a CPC of 1.20 € and a conversion rate of 5%, this yields a CPO of 24 €. But if the item being considered is returned, these key performance indicators of online marketing change. In our example, a return ratio RR of 5% leads to the following increase of the CPO:
If the return rate cannot be changed in the short term, CPCs and the conversion rate should be used to optimize the situation. Especially clear is the connection of online marketing and the return rate, assuming a 50% return ratio. This halves the effective conversion rate and thereby doubles the online marketing expense met, and thus the CPO. If there are items and categories with very different return ratios in an online shop, the adjustment of the conversion rate should take place at the item or category level.
While the adjustment of the conversion rate according to the return ratio serves to focus attention on the problem of returns in online marketing, segmenting is a cause analysis. The question is whether channels, devices, or other aspects of use in the online shop will result in an above or below average return behavior.
However, the connection between user behavior and returns is not always immediately obvious. Only when the return is processed through the customers’ accounts and the customers can also be segmented within the parameters of data protection can one find specific causes for returns within certain customer segments.
There are several possible factors for returns with regards to online marketing. For example, purchases made on mobile devices are more impulsive than sales made on a desktop PC. The scope of information available on smartphones is smaller, so there is a greater likelihood of a wrong purchase. If this connection is confirmed, the mobile shop must be optimized and tested to reduce the ratio of returns.
Access to certain marketing channels can lead to increased returns. If users are acquired using discount codes, price search engines, or other price-oriented channels, the possibility of return is higher. A thrifty customer will return the order if he or she later finds a cheaper offer or if the bargain is not as attractive as originally thought. An increased return ratio should be considered in this marketing. It must also be "refinanced" through smaller CPCs or a higher conversion rate.
The point of sale in an online shop is the end point of an often long decision process in which customers form expectations about a product: a product they can learn about only through texts and images. These expectations are often formed through advertising texts or meta descriptions that draw attention with particularly attractive presentations. If, however, the descriptions exceed the quality of the product or the service - or also the speed of delivery - there is a danger of return.
The quality score of Google Adwords offers a good orientation. This is an internal factor in which the anticipated click rate, the relevance of the advertising text, as well as the user experiences with the Adwords target site are summarized. The quality score is a summarizing key indicator that measures the agreement of the various levels of the online marketing process.
Figure 2: The Google Adwords quality score offers a good orientation.
If the user finds one of the steps to be irrelevant, the quality of the entire communication is judged poorly. If Adwords could also measure satisfaction with the product sold, this would certainly be included in the quality score. But because Google cannot do this, each shop operator can determine for him/herself whether the advertising text, landing page, and product including shipping are of a uniform quality. Here, test sales and customer workshops can be used to evaluate the "return quality score".
The name of the game in returns minimization is the product information. Returns frequently happen because customers have imagined the product wrongly or differently. This is why it is imperative to include comprehensive and relevant content in the product evaluation. Product images that show as many details as possible, product videos, and all relevant information in text form help with this. The following rule of thumb holds for returns: The closer a product is meant to be worn on the body, the more likely it is to be returned. It is all the more important that photos and videos showing the product in use should be included with fashion items and accessories.
But, of course, you also have to make sure that the content is accessible. For products likely to be returned, online marketing via Webanalytics should monitor the time on site, the bounce rate, and clicks to a product video on YouTube, for example. The best content is useless if it is not used. For product texts, it is helpful to extract product essentials from the ad text and to place these on the product page near the shopping cart button.
Studies have shown that customer evaluations (customer reviews) significantly reduce the return ratio. And the good news is that evaluations also positively affect search engine ranking. The retention time on product pages increases with the number of reviews, so that Google will give the page a higher ranking. At the same time, however, many shops find it difficult to motivate customers to give reviews. The difficulty is obvious; Reviews should be neutral and authentic.
This standard limits the marketing and incentivizing of evaluations. However, there are still some ways to garner more reviews:
The financial potential of minimizing returns is generally undervalued. Even for low return ratios of, for example, 5%, it is worthwhile to reduce the number of returns. And because online marketing is the central means of communication and sales in e-commerce, it should not be ignored. In addition to the consideration of the return ratio in online marketing controlling, it is important to analyze the reasons for return attributable to online marketing and take steps to better support customer decision-making.
Published on 02/27/2017 by Dominik Große Holtforth.
Prof. Dr. Dominik Große Holtforth teaches business studies and media management at Fresenius University of Applied Sciences in Cologne. He is also head of the e-Commerce department which deals with strategy-related questions, the controlling of key performance indicators as well as competition strategies in online marketing and e-Commerce. Prof. Große Holtforth is co-founder of the e-Commerce agency Warenkorb.com and founder of the online plant shop “Meine Orangerie.” This is how he combines scientific expertise and practical experience.