The ‘refund effect’: Retaining revenues with better retail returns

A recent study has shown that with the right retail returns software and strategies in place, returns do not need to be a drain on revenue for ecommerce companies.

Indeed, nShift Returns customers typically see up to 30% of consumer returns-related refunds deflected to exchanges.

The Refund Effect

According to the study, conducted by Harvard Business Review, consumers returned 16.5% of merchandise purchases, costing retailers an estimated $816 billion in lost revenue in 2022 alone. However, cross-selling products during the return process is an innovative solution for success because of a phenomenon known as the ‘‘refund effect’.

The refund effect is used to describe the consumer psychology of repurchasing a new product in the event of a return. When customers buy things, they already consider the money spent. That means using it on an alternative purchase - instead of getting a refund - does not feel like a loss.

Convert customer returns into exchanges

Consumers expect to be able to return products they buy online and are loyal to brands with a customer-centric returns policy. It can be a real point of difference for retailers if they get it right, and, as the study shows, it’s an ideal opportunity to cut revenue loss and strengthen the relationship with the customer at the same time.

Strategies for retailers looking to create customer-centric retail returns policy and practices to capitalize on the refund effect include:

• Make the returns process simple - a consumer-friendly returns interface makes it easier for the customer to exchange the item they are sending back for something else from the brand or retailer. With the right returns software, ecommerce companies can automate offering an exchange.
• Creating remarketing opportunities – emails about returns have significantly higher open rates than other retail communications. Retailers can create additional sales opportunities by weaving marketing messages into these emails.
• Drive customers in-store – a digital returns process makes it easier for customers to take their items back into the store. Here, they will speak with a member of staff who can encourage them to exchange the item. The customer will also encounter additional products and marketing messages in-store.

Returns management success story: Hunkemöller

One company that has used the retail refund effect to great impact is Hunkemöller, Europe’s fastest-growing lingerie specialist. By using nShift Returns, it has been able to offer its customers a seamless reverse ecommerce experience and has seen a spike in sales driven by a change in customer behavior, shifting online to warehouse returns towards in-store with an increase of 15%.

You can read more about its story in the ‘nShift helps Hunkemöller increase in-store returns by 15%’ blog.

Create a cutting-edge customer experience

Online retailers should deploy a returns management software solution that creates a cutting-edge consumer experience and captures useful data on sent-back items to make the most of returns. nShift Returns is designed for customers of all sizes. It creates a clean and simple consumer experience and reduces the administrative burden of manually processing returns to save time and money.

To find out how digitizing your returns management software can reduce retail revenue loss or explore the underlying strategies to capitalize on the refund effect, get in touch with us below.