51% of shoppers won’t buy from a retailer if they have to pay for return shipping. — Narvar
It’s no surprise that consumers today expect businesses to offer fast, flexible, and convenient services, which includes returns programs. But as businesses develop new offerings and perks to attract customers — like flexible returns programs — the opportunity for abuse increases as well.
Common ways people exploit return policies:
- Wardrobing: Also known as “free renting,” wardrobing involves a customer purchasing items with the intention of using them briefly and then returning them for a refund.
- Gift With Purchase: A customer returns a different and less valuable item while collecting the original item’s value.
- Free Shipping Abuse: A customer buys one or more additional items to qualify for free shipping, with the intention of returning them.
- BORIS Fraud: A customer takes advantage of a retailer’s buy online return in store (BORIS) policies, doing things like wardrobing items or Gift with Purchase.
Why it Matters— The High Cost of Returns Abuse
In 2020, fraudulent returns cost retailers more than $25 billion. What’s more is that 54% of businesses lose more than $5 million in revenue every year because of returns abuse.
Not having an effective approach to returns abuse will cost your business in many ways:
- Operations: Ongoing returns abuse means your business spends more on labor to cover the additional time spent sorting, inspecting, and re-stocking abusive returns. Teams must also spend time investigating each return, figuring out whether each return is legitimate or a result of abuse.
- Inventory: Excessive returns means you lose inventory that could have been sold to good customers, cutting into your profits. And in many cases, you can’t resell returned items due to wear and tear or seasonality.
- Shipping: Many businesses offer free shipping for orders and returns. When customers abuse your returns policies, those perks increase the costs associated with returns, which decreases your revenue.
Too often, retailers look at the high cost of returns and decide against building a robust returns program. They figure it’s already a lost cause, so to speak. And this is a shame because a great returns program can improve the customer experience and brand equity, while potentially growing revenue through repeat business. What many businesses don’t realize is that the high cost of a returns program isn’t standard– it varies based on how businesses are approaching abusive returns.
How Does Your Business Approach Abuse?
Many companies address policy abuse through traditional methods, such as:
- Limitations: Many companies add restrictions to their returns policies to curb abuse. For example, you might offer a short window for returning items — which means you risk losing customers to competitors with a longer returns window. We found that 68% of consumers prefer a 30-day window for returns.
- Blacklists: Some companies deter returns abuse by creating a constantly evolving store blacklist, with individual customers who are no longer allowed to return items. Many policy abusers find ways to get around the blacklist, and worse, some legitimate customers may mistakenly end up on it.
- Rules-Based Solutions: Some businesses implement a rules-based solution where transactions must match the criteria contained in each programmed rule; otherwise, the system flags them for manual review. Rules-based systems are prone to false positives because you often end up with hundreds or even thousands of overlapping rules.
Bottom line: These approaches may deter some policy abusers, but typically at the expense of customer experience. And, as your business grows these approaches are difficult to maintain.
Another watch-out. Some companies treat policy abuse and fraud the same way. However, policy abuse and fraud are not the same and require different approaches. To prevent returns abuse, you need to accurately identify policy abusers and stop them before they buy, which will reduce the number of returns and preserve the customer experience. Reducing abusive returns means fewer costs for your business and increased revenue.
Good Customer or Policy Abuser: How Can You Tell?
Consumers want businesses to offer convenient and flexible returns policies, and so do policy abusers. So, how do you decide if a customer will or won’t abuse your returns policies? You can’t — unless you have a clear understanding of their online identity or identities like them. It doesn’t matter what is being purchased so much as who is doing the purchasing.
The Forter Decision Engine leverages a graph of more than one billion online identities and a global network of behavioral data to distinguish legitimate customers from policy abusers. It looks at behavioral patterns to make precise decisions about trustworthiness. If the engine identifies the customer as a policy abuser, it will block them from purchasing. If the engine deems the customer as legitimate, it will apply the appropriate store policy automatically.
Tailor Returns Policies and Enforcement for Every Customer
Not all policy abusers behave in the same way. Some people abuse store policies repeatedly, while others abuse store policies rarely or occasionally. They don’t all engage in the same types of returns abuse, so the costs for your business will vary from abuser to abuser. Plus, serial policy abusers often attempt to hide their identities, making the Identity Graph all the more critical.
Applying the same returns policies and enforcement to all ranges of abusers means you miss out on opportunities to maximize revenue and customer lifetime value. You should tailor your policies and enforcement of those policies for every customer. For example, you could implement tiers of returns policy enforcement, such as:
- Send an email that warns the customer to follow returns policies as outlined.
- Apply a restriction to the customer’s account, such as no free shipping.
- Apply several limits to the customer’s account, such as no free shipping and a 14-day window for returns.
- Immediately block the transactions of the customer.
You can automate your returns policies, applying them across all channels and interactions. Our Trusted Policies solution identifies policy abusers in real time and lets you apply the appropriate returns policy to every customer.
Want to learn more about how to reduce the costs associated with returns abuse?
Download our free report, “Return to Sender: How to reduce the hidden cost of returns abuse.”