Retailers should create VIP return policies for customers who deserve special treatment for their brand loyalty. VIP groups can be established via a brand's purchase data and include big spenders, frequent customers who have never or rarely returned orders and other shoppers who have shown preferred behaviors. 

David Morin

David Morin, senior director, retail and client strategy at Narvar

The best retailers in recent years have personalized the experiences consumers have with their brands via email, websites, mobile apps and, in some cases, stores

Personalization, in other words, is often used to get consumers to place a purchase. Still, retailers have been slow to use it in the post-purchase experience, leading to better customer satisfaction, increased loyalty and more word-of-mouth promotion.

Personalized returns represent a massive opportunity for retailers to differentiate from competitors this holiday season. U.S. holiday sales online are expected to exceed $207 billion from Nov. 1 to Dec. 31, which would set a new record and represent a 10% year-over-year increase. Further, 96% of customers who are satisfied with the returns process say they will purchase with that retailer again. So, there’s a lot to gain for ecommerce players who get returns right.

At the same time, when retailers don’t manage returns thoughtfully, they can lose substantial revenue. The National Retail Federation estimates returns cost retailers $101 billion just during the 2020 holiday season. Unlimited free returns and no-questions-asked policies, which have become common in retail, aren’t operationally sustainable for most retailers—they hurt profit margins and bog down an already-challenged supply chain. Yet, personalization can help brands transform their return operations this holiday from a financial and logistical burden to a business driver.

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Rewarding ‘VIP’ customers

What are personalized returns? At the most basic level, they include return options that serve the customer individually and make the process easier for them.

With that in mind, retailers should create VIP return policies for customers who deserve special treatment for their brand loyalty. VIP groups can be established via a brand’s purchase data and include big spenders, frequent customers who have never or rarely returned orders and other shoppers who have shown preferred behaviors. 

 Retailers can offer VIPs longer free-return windows and other perks to reward and incentivize customers. Merchants can put rules-based systems in place to group customers who have earned a VIP policy, encouraging others to follow preferred behaviors while ratcheting down return volume and expense.

My research team analyzed the published return policies of nearly 200 major and D2C brands, including Walmart, Bed Bath & Beyond, Best Buy, and Lululemon. We found that only 9% of retailers have published VIP return programs. So, it’s early days for this idea. At the same time, DSW, Home Depot and Best Buy are ahead of the curve going into the holiday season, as they have adopted VIP policies for returns that elevate repeat customers to a membership-styled level.

Leading the pack for return options

DSW emphasizes that returns should be personalized with loyalty tiers, rewarding VIPs while giving new customers options.

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The brand extends free online return windows for its VIP Gold (90 days) and VIP Gold Elite (365 days) customers. All other DSW online customers are charged $8.50 for return shipping, which helps the retailer keep the cost of returns down compared to a free-returns-for-all policy. It also helps combat fraud because bad-faith actors will be less likely to pay for sending their items back.

Meanwhile, Home Depot’s free returns policy—365 days for VIPs and 90 days for everyone else—befits the long-term nature of its products and incentivizes ardent DIYers to qualify for the personalized service. And Best Buy gives VIP members a month for free returns compared to two weeks for others, which is a meaningful difference for gadget shoppers because getting twice as long to know a device’s features is essential to their customer experience. 

Using return policies to promote preferred behaviors

While returns can snowball during the holiday season and become unsustainable from an ROI standpoint, brands can steer customers toward more preferred behaviors if they get creative and strategic with their policymaking. ThredUp and Dollskill understand this mindset, offering free return shipping if the customer takes store credit instead of a refund. When shoppers choose credit, the retailer will still achieve a sale, the customers will find something they want, and neither the retailer nor the customer must pay for return shipping. It’s a win-win-win scenario. 

To promote preferred behaviors and limit return costs, Saks offers free returns for two weeks. There’s a $9.95 shipping charge after that juncture. Lulu’s offers a similar program: customers have 10 days to return; the cost is $7 after that. These return windows and price points are fair to the customer and encourage consumers to send items back faster. The advantage to tighter return windows is that the product can be put back in inventory faster and is more likely to come back in season to be resold at full price. And for the customer, it’s akin to the hospitality industry’s happy hour specials—retailers reward them for taking action early and make them feel good about being decisive and meeting the deadline. 

 Returns have reached a turning point heading into the holidays. Retailers are starting to realize that personalizing the post-purchase experience will lead to higher customer satisfaction, increased loyalty and more word-of-mouth promotion. While brands such as DSW, Best Buy and Saks are leading the pack, more retailers will be catching up, taking advantage of this enormous opportunity and outpacing competitors when we head into 2022.

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 Narvar Inc. is a logistics technology vendor that offers a post-purchase engagement platform.

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