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The Special Challenges of Electronic Commerce

While pure Internet retailers have preoccupied themselves with building attractive Web sites, launching huge offline marketing campaigns, and trying to create the coolest place to shop, they have neglected the very physical processes of product returns. Online product returns are skyrocketing, and as illustrated in Figure 10-3, the trend shows returns tripling between the years 2000 and 2004. Why have so many pure dot-com retailers overlooked this huge problem?

Some of the reasons these electronic commerce retailers have yet to fully develop returns policies and processes are

  • Relative Unimportance. Sound familiar? Online retailers, like their offline counterparts, have their priorities elsewhere. Most online merchants are so busy setting up their sites and attracting customers that they have relegated product returns to the back burner.
  • FIGURE 10-3 Online Product Returns

    Source: BizRate

  • Unknowns. There are so many factors that most online retailers don't know when they start out. They don't how much volume they are going to have or how they are going to handle it, so they start out handling everything manually. Then, if the site is successful, they are inundated with orders and with returns, and they are caught in a real bind.

  • Lack of Experience. Many online merchants have never sold anything before, or have very little retail experience. They don't know the importance of strong return policies and procedures, and they haven't had the years of hard-won experience that offline merchandisers have had.

  • Multiple Product Sources. In addition, online retailing is often more complex, as many dot-coms sell products from multiple manufacturers who drop-ship their products directly to the customers. Each manufacturer may have its own return policies and its own procedures, creating some very complex return scenarios.

In contrast to the lack of interest in return policies and processes by online retailers, online customers are very interested in how their returns will be handled. In fact, in a survey of 9,800 e-shoppers, BizRate found that return policies were enough to turn some potential buyers away. These include the inability to receive credit on a credit or debit card (85 percent) followed by a time limit to return products that is "too short" (68 percent).

FIGURE 10-4 Customer Attitudes towards Returning Items Bought Online

Source: BizRate.com, 1999

Figure 10-4 shows that fully 94 percent of those surveyed are influenced by an online merchant's return policies.

The three leading products returned were clothing (27 percent), computer software (20 percent), and books (15 percent). The majority wanted refunds, although exchanges were also favored, as shown in Figure 10-5.

FIGURE 10-5 Type of Action for Returned Items

Source: BizRate.com, 1999

Tips for Internet Retailers

Although the rest of the chapter on reverse logistics is relevant to e-tailers, there are a few features that can be built into a Web site to help start the Internet retailer out on the right foot.

Start Out Backward. First, try to design your systems with forward and reverse logistics as a top priority. Design from the warehouse backward. Regardless of how attractive your site is, if you can't handle product returns, the customer won't come back.

Make the Presentation Accurate. You can't try on clothing on the Web, so some people are simply buying the small, medium, and large sizes of an item, seeing which one fits best, and sending the other two back. One of the biggest ways to keep returns down is to make sure that the quality of the images and the information that you get to the customer in terms of the fit, size, and so on is accurate. The same concept applies to other products-the more information you can give (specs, colors, scale, etc.) the better off the shopper is.

An Impulse Buy Can Mean an Impulse Return. One-click purchase technology has made it easier than ever to buy an item on impulse; however, buyer's remorse can set in immediately after clicking the Buy button. Build in a facility so that when an order is created online, a cancel option is created and remains online for an hour. Some retailers are finding that the cancel button is hit on average three times for every hundred "quick buys."

Tell the Customer Where to Go. It is amazing how many sites ship products without instructions enclosed on how to return the product. This forces the shopper to get back online to find out what to do. This is compounded by the fact that since many online retailers outsource fulfillment to other companies, the items might need to be returned to a different address than they were shipped from. Detailed return instructions and return policies should be included both online and offline with the product packaging.

Absence Does Not Make the Heart Grow Fonder. The chances of a return increase when the time between the purchase and the receipt of the product is prolonged. Along with providing online order tracking, you should proactively keep customers advised via e-mail if a product's shipment status is taking longer than it should.

Go Configure. Sites that offer online product configurators are noticing a dramatic drop in product returns. By giving customers the ability to configure products such as PCs online, the final product order is less prone to error because customers can choose specifications at their leisure and even take a break from the task and finish it later. Dell Computers found that their rate of product returns was actually lower from customers who had configured their own PCs online versus those calling Dell for help from live sales reps. Include Online Tools. FedEx, UPS, and the U.S. Postal Service (USPS) have free online tools that merchants can integrate into electronic commerce sites that will make product returns a lot easier. To use USPS's Electronic Merchandise Return Service, online retailers must obtain a merchandise-return permit and set up an account at any local post office. When a customer alerts the online retailer of the need to return an item, the retailer provides the customer, via the Internet, with a merchandise return label, which the customer prints and applies to the package being returned. The package can then be tendered to a letter carrier, dropped in a collection box, or taken to the nearest post office. Federal Express's online returns-management system is called NetRe-turn. It captures customer information, schedules pickups, arranges transportation, and tracks the status of returned goods-all online. All the customer has to do is call the merchant and request a return authorization. Once the shipper transmits the shipment details, FedEx's information system takes over. It even prompts the merchant to follow up when items are not picked up as scheduled.

Capitalize on Click and Mortar. Companies that are hybrid online and offline retailers ("Click and Mortar" companies) can create a real competitive advantage by offering online shoppers the option to return products at their physical locations rather than using a package delivery service. This added convenience also creates an opportunity for an online shopper to come into the store and buy even more after their return has been processed.

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