The ecommerce business model is at exponential growth in India and everyone wants to be part of this growth story. But the picture is not rosy as it looks from outside. It is very important to learn the basics and economics of ecommerce fulfilment services else the sellers may incur heavy losses and the opportunity may result in failure soon.
In this blog we will talk about products returned to seller due to various reasons which is main cost of logistics services for running an ecommerce business
When customers order a product online, they get an expected date for the delivery of their order. This builds expectations that must be met to provide a basic level of customer service.
All e-commerce sellers try to fulfill these expectations. But it is inevitable that sometimes there will be delays in fulfilling the order within time leading to customers cancelling or returning their orders.
The other reasons for returns can be:
- The customer is not available to receive the order.
- The recipient changes his mind and does not want the package anymore.
- Customer contact information is wrong.
- The product did not meet the customer requirements/expectations or the product is faulty
But whatever the reasons may be, these returns prove to be a very costly affair for sellers. They lose the sale and the money that could come with it. For every product that is sold, there are two main charges- fulfillment and shipment. So, when the order is returned it comes under return to origin (RTO) and there is a reverse shipment charge for the same. Also, it must be stored back in the fulfillment center. For that, the order needs to go through the whole process of returns management which puts another cost. Together these costs erode all the margin. Now multiply these costs for, say, 100 orders and the costs increase manifold, even eating into the overall profit made from other sales that were successful.
Despite there being many reasons for returns, the most prominent is a delay in delivery. Customers today expect everything to happen fast and even if they accept a longer estimated time, they want their orders to be delivered within that time. According to an industry-wide research, the chances of RTO for an order increases directly with the time for delivery. And if there are frequent delays, then the returns cost not only in terms of the lost sale from one customer, but the overall sales also start decreasing because of bad reviews. Customers tend to talk about negative experiences more than positive ones and in today's world of social media, the impact is even worse.
So, losing sales for the present and getting higher customer turnover in future just because of small delays can be disastrous for a new and upcoming e-commerce business.Let us see how RTO can be reduced through various methods:
When shipments are faster, delays are less frequent, and customers are satisfied. Especially in cases where customers know that they have ordered the right product and the same is delivered within the promised expected time, chances of that customer ordering again increases.Post Order Service
As soon as a customer orders a product, it makes great sense for businesses to reach out to him/her for some help or assistance before the customers reach out.
The first step in this are timely notifications of shipment at different stages like in-transit, packaged, out for delivery, etc. Then message or mail alerts can be sent in case of any delay or any exceptions to delivery.
Both aspects help build a seamless and hassle-free shipment mechanism and create trust between the seller and the customer. This, ultimately, gives top-notch online shopping experience to the customers.Verifying Pin Codes
For delivery of online orders, courier services' biggest reliance is on pin codes. But in a country so diverse as India and outdated system of pin-codes, it is a big pain point for shipping carriers to correctly and timely deliver the orders.
But in case there is a wrong delivery, a package intended for Delhi goes to somewhere in Uttar Pradesh and the customer is not notified of it, there will be a delay and the order will be returned. To avoid/reduce such returns, communication is critical. If customers are notified about the problem, then they may consider waiting, but if not, then the return is bound to happen. Taking care of this by correctly labelling the pin-codes and maintaining proper communication will significantly reduce returns.Reducing COD Orders
According to research by PixelMattic, Cash on Delivery (COD) is the primary mode of payment for online orders in India. Roughly 73% of all orders are COD and 40% of all these orders are returned to origin (RTO).
Some customers give incorrect phone numbers and addresses. Others change their minds after they have placed an order. These factors lead to high returns.
To avoid these, following solutions can be taken:
- Incentivize customers to switch to online payment mode by offering promotions and discounts.
- Establish a minimum buying limit for availing COD facilities.
- Run basic sanity checks with a customer's phone number, email, and address. This will help detect incorrect or incomplete addresses and can be updated.
Feedback should be taken from buyers via email, SMS and/or WhatsApp. This will establish a better communication, let a business know about their perspective and identify delivery errors. These all can be done through automated non-delivery reports (NDRs).Conclusion
The next wave of growth for e-commerce is going to come from tier II & III cities and most of the returns also come from there only.
So, while there is no way to avoid returns and reduce RTO to zero, there are, certainly, ways to reduce it. For all online businesses, it is vital to keep their returns percentage to a minimum and for small businesses it becomes even more critical.
Also, because returns cannot be completely avoided, it's required to have an actionable plan for handling returns in the most efficient way possible to reduce their costs.
Following the steps mentioned above and availing services from the right logistics partner will greatly reduce the probability of returns and directly impact the bottom line in terms of higher profits. It is also important to research to find a 3PL partner for your ecommerce business who can well manage the returns in a cost effective manner.
Godamwale is a tech enabled logistics company that provides flexible, on-demand, scalable and integrated ecommerce and B2B fulfilment solutions. The on-demand warehousing model on pay per use sq.ft model without long term contracts can help you place your inventory near to the customer base reducing delivery time and return to origin logistics cost. Godamwale with its state of art technology platform to track and trace orders at each stage is integrated with 200+ fulfilment centres to help you reach every corner of india.
This blog is written by Dheeraj Kumar who is pursuing his MBA from IIM Kashipur.