The word ‘free’ is one of the most deceptive and carelessly used words. Buy a shirt, get one more free! How is it free when I am paying 20 dollars in the first place! Yes, it’s cheaper, I am getting two shirts at half the price, but it’s definitely not free.
But there are a group of people who are doing justice to the word ‘free’. These people are called online sellers. They are delivering everything, from clothes to vegetables, free of cost, and what’s more interesting is that they are even accepting returns free of cost. The question is, are free returns viable or is it that businesses are just being complacent of the fact that they are offering free returns because everyone else is?
Let’s talk about the viability part. A customer will definitely not go to a physical store to return a shirt that she bought online. How could she? She doesn't even know which store the shirt was picked up from. Therefore the onus of managing the entire returns process is on the online seller and not only are they willing to take this responsibility, they are doing it for free.
The entire process where an executive is being sent to a customer’s doorstep for picking up the returned product, then sending that product back to the hub and finally to a warehouse where this product will indefinitely stay along with hundreds of other products that met with the same fate, is done without the customer having to pay anything.
From a business’s perspective, it’s expensive. The delivery executives need to be paid. There are significant logistics expenses in transferring the product back to a warehouse all the way from a customer’s home. On top of it, there are warehousing and inventory management expenses.
According to a research, on a global level, returns account of 4.4 percent of the revenue organizations loses. This can be further broken down. For instance, clothing retailers see an average of 10 percent of their sales returned, the highest among retail segments. Electronics, books and other hard-goods retailers follow, with an average of 8.8 percent returns. In North America alone the cost of reverse logistics is 246.4 billion USD. Clearly, free returns leave a significant dent on an organization’s profitability.
But then is charging a customer for returns an option? It would have been but since 49 percent of businesses are already offering free returns and 62 percent of customers say free returns will keep them loyal, it’s not anymore. In fact, offering free returns is now a matter of being self-satisfied--”Everyone else is doing, I should be doing it too.”
What’s more interesting is that only 42 percent of retailers are able to say that they fully understood the financial impact of returns on their business, while 27 percent admitted that they ‘guess’ or ‘can’t measure it at all’.
Free return is pretty much like falling in love. It’s not pragmatic, not viable and you do not seem to understand what’s really going on. But, you will fall for it anyway.
Leveraging Advanced Tools To Optimize Operations
Having said all these, it’s good to know that with the rapid evolution of technologies that drive supply chain and logistics operations, it is possible today to have greater control and visibility of reverse logistics processes and optimize operational expenses. Take for instance a digital control tower.
Savvy businesses are leveraging digital control towers to improve returns management. A digital control tower has the unique capability to seamlessly integrate disparate supply chain and logistics platforms like ERP, TMS, WMS, and CRM. It accumulates the data generated by these systems and displays it on an easy-to-understand dashboard. This empowers logistics stakeholder to know every granular detail of reverse logistics. A control tower can be referred to as the single source of truth that’s needed to make accurate and fast decisions.
It ensures proper collaboration between supply chain stakeholders and that everyone one is intimated with the right information at the right time.
Then there are advanced supply chain platforms that are powered by machine learning and data analytics capabilities that help businesses automate route planning, task scheduling and job allocation. This significantly reduces the need for constant manual intervention and hence shrinks operational expenses and ensures high levels of scalability. Such platforms can also tell why a particular family of products are being returned and hence help businesses sell better and reduce the volume of returns.
It’s important that online retailers first acknowledge that providing free returns is indeed an expensive proposition and once that’s done we are sure they will embrace advanced tools to optimize returns management.
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