Reduce Returns by Innovating the Customer Set-Up Experience

Reduce returns with best practices proven to drive customer loyalty, such as providing an easy and innovative set-up experience.

The front entryway to Lola Knudson’s Riverdale condominium in the Bronx is a maze of cardboard boxes. Deliveries from Amazon, IKEA, Nordstrom, Home Depot, and Walmart line one wall, while returns ready to ship back are stacked against the other. Since the pandemic, Lola has become reliant on online shopping, but she’s also become familiar with its challenges. “As convenient as delivery is, it’s a real hassle when something doesn’t work out. You quickly learn which companies make returns easy and which websites to avoid.” The secret, she says, is minimizing friction in the process.

Rose Mary Blackhurst, 82, shares a similar sentiment. A retired educator and self-described “retail therapist,” she recalls being on a first-name basis with several Scottsdale department stores. But as she’s aged, and with the help of her iPhone, she’s fully embraced e-commerce. A few years ago, she would make weekly trips to her local Mail & More to return items. When Kohl’s started accepting Amazon returns, she described the shift as “life-changing.”

Many Unhappy Returns

According to a recent study cited by Thomas S. Robertson of the Wharton School of Business, roughly 10% of all purchases are returned, amounting to billions of dollars in annual losses for retailers burdened with unwanted items. The return rate for e-commerce purchases is about three times higher than for in-store purchases, with around 25 to 30 percent of online orders being sent back.

Returns are driven by both controllable and uncontrollable factors. Controllable returns can be reduced by the seller addressing issues like logistical errors, shipping delays, packaging damage, inadequate set-up instructions, or inaccurate product representation online. Uncontrollable returns, however, are inevitable when customers change their mind or decide they no longer want the product.

Return Policies Matter

At least 68% of shoppers review a company’s return policy before making an online purchase. Despite the growing popularity of e-commerce, over half of Americans prefer to handle returns in person. Key concerns such as unpredictable shipping costs, the hassle of repackaging items, and delays in receiving refunds drive consumers to favor in-person returns.

To reduce friction in the return process, companies should offer a variety of options, including traditional post office returns, collection points like Happy Returns kiosks in malls or retail locations such as Kohl’s and Whole Foods, and courier collection services from UPS or FedEx. Additionally, making locker drop-off locations widely available can further enhance convenience. Approximately half of e-commerce shoppers have abandoned a purchase due to limited return options.

Best In Class Brands

For brands focused on customer loyalty, navigating product returns can be a challenging landscape filled with significant costs and risks to customer relationships. While a positive return experience can foster loyalty, it often comes at a high cost. In the U.S. alone, returns are projected to cost an estimated $550 billion this year, reflecting a staggering 75.2% increase over the past four years. This figure does not even account for restocking costs and inventory losses.

Some online vendors, like Walmart, have begun offering refunds for certain items without requiring customers to ship the products back. For instance, when Kellie Henderson moved to Texas, Wayfair sent her the wrong set of barstools. After she contacted customer service, they promptly sent a replacement set without requesting the return of the incorrect items. Similarly, Pier One Imports quickly sent replacements for dining room chairs that had manufacturing defects, leaving Henderson pleased with the support but still responsible for disposing of the original chairs.

Today’s consumers don't merely compare return policies among similar brands; they evaluate the overall return experiences of all companies they engage with. A significant 83% of consumers believe that “best-in-class” brands raise expectations for all companies, not just their direct competitors. Companies like Costco, which allow returns in any condition, and Amazon, known for consistently exceeding customer expectations, set a high standard that can widen the gap between consumer expectations and actual experiences. Research indicates that 76% of consumers expect companies to understand their needs, yet half feel that most companies regularly fail to meet their expectations for a great customer experience.

Interestingly, brands like Zappos view product returns as a potential profit driver. Craig Adkins, VP of Fulfillment Operations at Zappos, notes that their best customers tend to have the highest return rates, but these customers also spend the most money and yield the highest profits. According to Zappos, their biggest spenders return about 50% of their purchases. CEO Tony Hsieh emphasizes that Zappos is not merely an online shoe retailer but a “happiness delivery company” that prioritizes employee satisfaction and strong customer relationships. Rather than focusing heavily on traditional marketing, Zappos invests in “wowing” customers with unexpected perks like overnight shipping, encouraging satisfied customers to share their positive experiences with friends.

Loyal Brand Promoters

This concept of fostering loyal customers and assessing how well a company engages with those it impacts is central to the Net Promoter® System (NPS), established in 2003 by Fred Reichheld, Bain & Company, and Satmetrix. Zappos is part of Bain’s NPS Loyalty Forum, which aims to enhance world-class customer loyalty programs and boost employee retention through the use of NPS and its pivotal question: “On a scale of 0 to 10, how likely are you to recommend Company X to a friend or colleague?”

This approach emphasizes that every interaction either strengthens or weakens a company's loyalty connection with its customers. NPS serves as a measure of how effectively a company or its employees cultivate relationships that lead to repeat purchases, referrals, and consistent revenue streams. Research has demonstrated that the likelihood of recommending a company is a strong indicator of future growth. Companies that score high on the NPS scale are typically more successful in building long-lasting relationships with their customers, leading to increased loyalty and profitability.

NPS helps brands distinguish between promoters, (who rate the product a nine or ten), passives, (who score it a seven or eight), and detractors, (who grade it six or below). Promoters are the most loyal customers who purchase again and again, the fans who refer their friends, and are less price-sensitive and fickle than passives or detractors. Net Promoter Score is calculated by dividing responders into groups, setting aside passives, and subtracting the percentage of customers who are detractors from the percentage who are promoters.

Reichheld insists the future of company success will be measured in customer-centricity as opposed to the profit centric-model of decades past. He predicts the customer experience will overtake price and product as the most important brand differentiator. A “wow” first impression—creating a special experience in the initial interaction with a product—is key to capturing loyal customers from the get-go.

Stumbling Blocks & Stepping Stones

As in Kellie’s case, one potential stumbling block along the customer journey is when a product arrives flat packed with some assembly required. In other words, the product can’t be used or enjoyed without some level of effort on the part of the consumer. Providing a friction-free setup is crucial; about two-thirds of consumers recognize that good instructions are important to their enjoyment of a product, and around 80% of consumers surveyed say they would not buy a product—or any other products from Inservio—again if they have a bad experience with the instructions.

Instructions that are difficult to follow increase product returns.

Time is precious, and anticipation runs high, so it’s imperative to get to the “wow” as quickly as possible by anticipating obstacles, perfecting instructions, and using the assembly experience to showcase the quality of design and engineering of the product. This approach will pay off; studies show that manufacturers with “best-in-class” high-quality and usable product instructions saw a 23% increase in consumer satisfaction and an 18% increase in revenue.

Reduce Returns with Prevention

As Benjamin Franklin said, “an ounce of prevention is worth a pound of cure.” Just as brushing and flossing lead to a happier trip to the dentist, providing 3D interactive animated instructions preempts potential assembly headaches and reduces the need for consumers to engage (online or on the phone) with customer support. Superior to paper instructions, which force users to synthesize abstract text and diagrams into coherent actions, or video, which is limited by the angle of the camera, 3D interactive instructions utilize the manufacturers’ CAD to allow for manipulation and transparency. This way, animations look exactly like the product, and the images can be viewed from any angle on a touchscreen device.

Assembling a KidKraft dollhouse with 3D interactive instructions on the Inservio app

Interactive 3D instructions on the free-to-use Inservio app guide users at their own pace, pausing after each step instead of automatically proceeding to the next, like traditional video instructions. They provide text, voice, and visual guidance. Users have the ability to tap on the touchscreen to see detailed information about a part, pinch to zoom in and out on an image, and drag to rotate the view 360º. The animations can be manipulated to show the animation from any perspective.

Inservio instruction designers create 3D instructions that can be manipulated for clarity.

Reichheld, who recently joined the board of directors, says he did so because “Inservio meets a legitimate unmet need in the world—a gaping need for most products and many services. To get a customer relationship off on the right foot, to welcome a new customer into the family with a good first experience and help them feel like they know what they’re doing and that they belong. That’s where Inservio can uniquely deliver.” At the end of each set of instructions, users are given the opportunity to provide a Net Promoter Score that can be syndicated to brand and retail websites.

A Socially Sensitive Window

Besides cementing customer loyalty, the set-up experience has an inordinate effect on a brand’s ratings and reviews because it occurs during the most important socially sensitive time period. Research shows consumers are most likely to mention a brand by name (for good or ill) within 12 hours of opening the box. Consumers like to show and tell their friends (in person or online) when making new purchases. They’re most likely to include the brand name on the first day.

After that critical window, consumers often forget to leave feedback. When they next mention the product (to friends or on social media), it’s typically in the context of using the product and usually omits mention of the brand name altogether. So those brand callouts are powerful. A Forbes study indicates at least 81% of consumers admit recommendations and posts from family and friends directly impact their buying decisions.

When customers have a bad experience, they’re twice as likely to let their friends know.

According to the 2020 National Customer Rage Study, consumers who’ve had a positive experience tell an average of 3.7 friends or associates. That number is double for those who have a frustrating one. If even one of the average seven others they vent frustrations to happens to be via social media, that number can be amplified exponentially. Those surveyed reported an average of 865 friends and followers across social media.

Rage researchers say the expansion of online retail has raised customer expectations, yet customer service ratings have never been worse. More than two-thirds of those polled say they’ve experienced “customer rage” in the last 12 months. One case study indicated that 3D interactive instructions helped mitigate penalties to NPS by reducing product returns and calls to customer support by up to 30%, leading to a 30-point swing in NPS (from +32 to +62) for the product analyzed.

As best-in-class brands innovate and perfect the customer experience, those brands fraught with friction will fall farther behind. For consumers like Lola and Rose Mary, old shopping habits have shifted for good. The time-saving ease of online buying and quick delivery, combined with easy, intuitive assembly and installation instructions, means some types of returns can be eliminated altogether.

This article originally appeared in the November 2020 issue of Reverse Logistics Association magazine.