While we may assume free-for-all returns are popular with customers, that may not be a sustainable practice for retailers looking to meet their bottom line. Rather, it’s important to understand what return offerings actually matter to consumers and ensure your return policy is tuned to reserve those perks for your most valuable customers.
By striking a balance between what customers want and what’s financially responsible for the business, returns don’t have to be a liability. Instead, use them as an opportunity to build long-term relationships with consumers.
Most membership or VIP programs do not currently extend to include perks for return processes. In fact, of the nearly 200 retailers analyzed in our 2021 Returns Benchmarks report, only 9% publish special return policies for VIPs (though more may treat them differently on a case-by-case basis). Given the increasing importance of the returns experience to driving repeat visits and customer loyalty, it behooves retailers to expand their VIP programs to encompass returns.
The industry standard is to accept returns of most full-price merchandise, but retailers can offer more generous return policies for their VIP customers, who typically fall into three groups:
Basic loyalty programs, like AnthroPerks, require only contact information to enroll, and generally offer free shipping, discount codes, and points-based rewards to shop with the retailer. Return perks usually kick in when the customer demonstrates loyalty to the brand, either by signing up for the retailer’s branded credit card or achieving benchmarks within a tiered purchase program, like Best Buy Elite.
All customers want free, easy returns, but VIP customers expect them. In a recent Narvar survey, 66% of respondents said they “must have” free return shipping as part of a VIP benefits program, while 27% described free returns as “very valuable.” That’s over 90% of customers who consider free return shipping to be a VIP priority.
The second-highest VIP priority is instant refunds, which a combined 72% of respondents identified as very important (49%) or a must have (23%). Sixty-six percent of respondents identified “return packaging materials and service” and “extended return periods” as valuable perks, with return packaging and service edging out extended return periods in the “must have” category.
Free, scheduled return pickups rounded out the category, with a combined 61% of respondents describing it as a “very valuable” or higher perk.
Returns are one of the smartest ways for retailers to translate loyalty into real world perks. It’s an easily-understandable value proposition: the best customers enjoy more lenient return policies. Brands like Home Depot, DSW, Best Buy, and Target have embraced this approach, offering extended return windows for card holders or top spenders.
Particularly for companies like Home Depot and Best Buy, which cater to major purchases like tools and appliances, the incentive to earn VIP status is clear: a Best Buy Elite Plus member enjoys a 45-day return period, compared to the standard 15-day window, while Home Depot credit card holders have a full year to return items purchased with their cards, compared to the 90-day period for other customers. When deciding between retailers for these big-ticket items, customers can be swayed by longer return periods.
The challenge with extended return windows, however, is they increase the likelihood that the retailer will have to take a loss on the returned merchandise. Returns are built into a company’s margins, but excessive returns and return shipping costs can affect profitability. It’s a balancing act: companies must weigh whether the risk of losing money on one transaction will lead to profitable transactions with the same customer—or people within that customer’s sphere of influence—in the future.
One way to minimize the markdown risk of returned merchandise is to offer free returns during a limited shipping window. It’s a strategy that companies like Lulu’s and Saks Fifth Avenue have successfully executed to incentivize customers to send inventory back faster, increasing the chances it can be resold at full price. Lulu’s offers free returns for 10 days after a package is delivered, and charges $7 for a returned package after that time. Saks has a more lenient, 14-day free return window, but deducts $9.95 from the refund after that period.
Another option is for companies to offer free returns in exchange for store credit. Both Dolls Kill, a Generation Z mainstay, and ThredUp, the online resale juggernaut, give their customers the option of choosing between free return shipping and receiving store credit in lieu of a refund, or paying the shipping fees and getting their money back.
Whether a company chooses free returns, longer return windows, or instant refunds, creating return perks for top customers can help brands offset the losses from returns with repeat or high-value purchases. Above all, remember that customers—especially VIPs—demand communication: regardless of the policy a retailer chooses, the process has to be clearly outlined and easy to complete to ensure continued loyalty.
Andria is Global Director of Marketing & Communications at Narvar. She grew up in entertainment at iconic brands like EMI & MTV before pivoting to ecommerce, most recently at Walmart.com.