Free shipping and free returns sounds too good to be true – and it is. While there are advantages for consumers and retailers in offering the service (retailers have calculated it is in their interest to offer), the whole process adds significant costs to the online shopping experience. Returns of online purchases are high, and free shipping and returns encourage the ‘ok to return’ mentality. This article considers some of the top reasons why retailers offer free returns for online purchases, as well as the significant costs of providing this service.
Advantages of offering free online returns
Reduces the barrier to making a purchase
One of the primary benefits of offering free returns is that it reduces the barrier for customers to make purchases. Knowing that they will be able to send the item back without having to pay for postage nor a re-stocking fee makes them much more inclined to make impulse purchases. After all, why not make the purchase risk-free, since you are able to send the item back if it doesn’t meet your expectations (or you change your mind). Particularly for goods that are typically sold without much research or advance thought, offering the ability for customers to freely return the items may substantially increase sales.
Allows you to be competitive with other retailers
Beyond reducing one possible barrier preventing customers from making purchases on-line, free returns may also be necessary for you to remain competitive with other retailers that also offer free returns. The ability to quickly compare different retails have made it easier than ever for customers to switch between different companies. If your key competitors are offering free returns, and you are not, potential customers may move to a different retailer.
Disadvantages of offering free online returns
Of course, while free returns may appear good for customers, there are significant costs involved – both for the retailers, and in the long run customers.
Encourages purchases to 'test' or 'view' the product
Part of the problems of free returns come from encouraging consumers to test or view the item. By making it much easier to make impulse buys, retailers essentially encourage users who may not have seriously thought through their purchase to buy the products. Some of these will end up keeping the item – some will return items they never really planned on buying. Free returns encourage the purchase that are likely to be returned.
The cost of processing returns
The costs of processing returned items can quickly mount up. Not only is there the delivery fee born by the retailer, but there is also the sorting and checking time involved in processing items. Indeed, for retailers that offer free shipping as well as free returns, these costs are incurred twice – in sending the items out and also in processing their receipt.
Product waste: Unable to resell many returned items
One of the most painful costs of returns is that a large proportion of them are never-resold. The difficulty checking everything is in working order and repacking the item, may simply be too great to make it worthwhile, or hygiene reasons may prevent you from being able to offer it to others. Indeed, you may have to pay to landfill the items. Of course, such wastage is not only bad for your profits, but also society at large – essentially unused product being disposed of is an awful wastage.
Tied up stock
A hidden cost of having a high proportion of goods returned is that it ties up stock (and capital) for long periods of time. Even if you are able to ultimately resell the goods, the time in sending the item to the customer, waiting for them to decide whether they want it or not, returning it to the store, and then sorting them, can mount up. You likely have added several months to the time before that good is ultimately sold.
Impact on customers: Prices will be driven up over time
Although it is easy to assume that the costs of free returns are born by the retailers, the reality is that ultimately customers end up paying. The costs of sending a high proportion of goods back are ultimately passed on to the consumer – at least indirectly. You may not see a fee directly added, but the amount ultimately gets bundled into the price of buying the good. Indeed, even if you have never returned a single item when shopping online, the prices that you pay will be influenced by those customers who do send a large volume of items back.
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