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Leveraging Customers Product Return Behavior for Achieving Sales Growth

It is well known that patterns exist when it comes to customer behavior and product returns.
As a result, many retailers simply shy away from continuing to invest in relationships with customers that tend to send things back, such as mailing fewer catalogs. But in fact these people can be the most valuable customer base if the retailer tries to understand and influence the behavior.

Some quick facts about the impact of purchase characteristics on the product return behavior:

* Gifts from family and friends are less likely to be returned
* Holiday seasonal shopping gifts are more likely to be returned
* New product category in the existing distribution channels more likely to be returned
* Existing product category expanded to a new sales channel are less likely to be returned
* Items on sale are less likely to returned

It seems straightforward that product returns tend to be lower when shoppers bought items that were discounted. Not as well known is that returns were also lower when customers bought the same kind of products online that they normally purchased from catalogs or brick and mortar retail stores. For example, if the customer normally purchases women’s clothing from a brick-and-mortar store, then the retailer could send this customer coupons to shop online for women’s clothing. The likely result is the customer will return a smaller percentage of her online purchases.

In contrast, returns tended to be higher when shoppers bought new products from the same distribution channel. For example, the customer buy shoes from a merchant they normally used to buy outerwear. However, higher returns is not necessarily a bad thing if its accompanied by a faster growth in sales. Retailers must realize that a customer base returning only a small percentage of products, such as 5%, may not be reaching its full potential. The new mindset for the company is to maximize its profits from this customer base. The key is to focus on the customers need and introduce them to new types of products. If the customers is purchasing only men’s clothing, the manager may send him a coupon to make a purchase in the outdoor living department. While the shopper’s venture into unfamiliar territory likely results in higher returns, the merchant may have discovered another way to boost sales from returning customers.

In summary, there is an optimum return rate for each retailer. If the return rate is too low, the retailer may be missing out on potential sales. If the rate of return is too high, then the cost to the company outweighs the benefit of the increase in sales. By understanding the cause of the returns, online retailers can modify its marketing strategy to segment promotions that increase sales without an even larger increase in returns.

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