How D2C Brands can Reduce their RTOs

India's e-commerce is booming, and it is expected to grow by 84 percent by 2024.
How D2C Brands can Reduce their RTOs

D2C brands are trying to provide an individualized experience by creating a story and understanding the essential needs of customers. The key to becoming successful and building a strong customer base in the D2C brand is by creating trust and meeting customer expectations. 

A joint study between Affle’s MAAS and Sensor Tower has reported the growth of daily active users in the Indian market and reported, “India’s e-commerce is booming, and it is expected to grow by 84 percent by 2024”. 

Last year, the e-commerce industry has seen an increase in sales, especially the D2C brands. This industry has also faced a harsh reality that is an increase in returns and D2C brands have faced difficulty in managing their operations. 

Mehmet Altug, Associate business Professor, George Mason University mentioned, “As online sales increase, the return rate has also increased significantly, and I don’t think it’s a secondary problem anymore.” 

Return to Origin (RTO)

RTO happens when the product is not delivered and shipped back to the seller’s pick-up address. The convenience of online shopping has allowed customers to purchase multiple sizes or colors to ensure the right fit and return the product at their convenience, which is making sellers' rides difficult. Looking at the scenario, reverse logistics is also a part of the business plan now as brands have to ensure that the ‘customer should like it enough to not to return it. 

At once, brands may bear the loss of order processing but it’s hard to entertain the loss when it comes to inventory. As when the product is locked for days, breaks its cash flow despite of physical existence. It’s been observed that the probability of return is higher in the case of online shopping, which is one of the big challenges for the seller. The reason for return could be multiple like incomplete or fake address, non-genuine buyer, refusal to accept, spelling error, missing information, COD payment is not ready, unreachable customer, or not available at the address provided, issues of trust in the brand or product quality, or payment method, brands need to understand their customers and find out ‘why orders are turning into RTOs’.  

The reality is it impacts the revenue and the profit directly because the undelivered package is neither good for the buyer, nor the seller and even holds back customer satisfaction too. Brands not only bear the shipment charges for forward and reverse shipping, but also face many other issues like warehouse space, costs of repackaging, locked inventory, and cost of handling recalled inventory.

Why COD? 

Return to Origin (RTO) is an extra expenditure and one of the big challenges to businesses, as they have to bear additional costs which include order processing, and logistic fees too. In the case of the D2C brand, businesses facilitate the option of cash on delivery for multiple reasons as a customer believes it as a safe option, which consecutively increases the possibility of the return either by refusing the order or denying the payment. 

One of the studies on demonetization shared, “The average rate of returns' for all e-commerce purchases was 20 percent. However, when looking only at COD purchases, this rate doubled to 40 percent. When you consider the various estimates of India's e-commerce, COD being anywhere from 50–80 percent, the massive scale of the problem becomes apparent.” 

D2C brands should verify their COD orders by either investing in Interactive Voice Response or automated Non-Delivery Report. Such investments ensure the probability of reducing the risk to return by giving a verification call to the registered mobile number and by taking follow-ups with customers for re-attempt of delivery. 

NRF found that “returns can create opportunities for fraud, too. For every $100 in returned merchandise accepted, retailers lose $10.30 to fraud.”

Many D2C brands have already started converting their COD to prepay by sending regular notifications by SMS or Whatsapp and enticing them with some last-minute savings by offering discounts or options to save on delivery charges.

COD undoubtedly is one of the major factors that is making an e-commerce business successful but also bringing subsequent losses too. Brands need to analyze the customer history, verify contact details and addresses, notify the customer about the product status, enable prepay options, put a minimum order value for COD, and others. Brands should analyze the loss by identifying the category with high demand and high return and prepare themselves with the solutions to the same.

Steve Prebble, CEO, of Appriss Retail mentioned, “Retail is dealing with an influx of returned items. Now is the time to stop thinking of returns as a cost of doing business and begin to view them as a time to truly engage with your consumers.” 

Retailers are even trying to adapt the best possible solution like open box pricing or convincing customers to either keep the product for free or donate the product to eliminate shipping charges. Store retailers see this option as an opportunity of bringing customers back in-store and build rapport to gain their loyalty. Retailers must note that a polite return process also helps in gaining credibility as well positive perception of a brand. 
 

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