How SMBs Can Compete in an Era of Free Returns

It's the way of the world that giant corporations have the resources to crush their competition, especially when they attain a dominant position in the marketplace.

The goliaths of Amazon.com and eBay did this to SMBs when they started offering FREE returns of online purchases.

To be fair, the big companies probably didn’t foresee the scale of the problems that would result, even for them, as returns totaled a massive $743 billion in the U.S. alone in 2023 — a tick above 14 percent of total purchases.

There are the horror stories of fraud, including the person who filled their TV box with bricks when sending it back after getting their refund.

This article isn’t about fraud, although some companies are looking into ways of giving consumers a rating that retailers can check when dealing with them (much in the same way a credit rating works when applying for finance).

This article is focused heavily on the issue of returns and how SMBs can handle the growing impact of them on margins and indeed business survival.

Let’s quickly look at the physical implications. When someone buys something online and it's sent out, this could be described as water flowing in one direction from the source to the destination. If the consumer keeps the goods, that' great. But if they return it, the water must flow back to the source, and then in many cases, a replacement has to be sent. Therefore, the water has now travelled that route three times, not once.

No wonder retailers can’t afford the cost of often handling the same goods three times, let alone the fact they often can’t resell the item that's returned.

Also, little wonder that many retailers are now looking to introduce charges for returns. That is only fair in my opinion. If you buy something from a physical shop, you normally must lug it back to the shop yourself and spend your own time and money doing so. Why should online be any different?

Part of the solution might be in charges for returns.

However, the real long-term solution for SMBs is in knowing the customer better. It has long been the superpower of SMBs to provide personal service and a human touch to their interactions with customers. As a consumer, if you know the owner, I reckon you're also less likely to try and rip them off with fraudulent returns. Don’t get forced into a situation where every purchase is transactional as this alternative is way more expensive than building relationships.

SMBs can improve their knowledge of customers through their interactions with them as well as via surveys, but they can also use emerging customer commerce technology solutions and the data they collect to assess patterns of purchases to build knowledge about each customer. In this way, they can personalize the experience with each customer being guided through their online experience, being offered items that suit them, and perhaps even in the correct size and fit for them as well.

This hasn’t been possible in the past with data strewn across multiple systems from website to finance to fulfilment and CRM. But now, customer commerce solutions becoming available offer all these activities in one single source of truth system. They're also affordable for SMBs with tight technology budgets and are less likely to fail or make life difficult for the SMB or their staff searching for customer information.

In summary:

1. Know your customer so you can provide a more personal experience online.
2. Use data to support that personal experience.
3. Reduce your costs and waste by getting it right the first time with a customer commerce solution.
4. Improve your profit and customer lifetime value by offering a better experience online and in-person.

Reducing returns is crucial for long-term growth and profitability and goes beyond a cost-cutting exercise.

We can’t necessarily handle fraudulent returns but by knowing our customers better, we will reduce the overall impact that returns have on our bottom line.

The Goliaths like Amazon are still tricky to compete against, but we can use our superpower to offer a better overall experience and win with the customers who are searching for a more human connection.

Let’s get back to winning in the market segments where we can compete, while enjoying less returns and a better profit margin.

Mikel Lindsaar is the CEO and Founder of StoreConnect, a Salesforce Partner Innovation Award Recipient.  StoreConnect helps small and medium-sized businesses become scalable customer companies powered by Salesforce.