Transforming Returns into Opportunities: 5 Steps to Implementing a Dynamic Retail Incentive Program

If you still consider returns simply a cost of doing business, it's time to rethink your strategy—particularly for returns from your ecommerce sales. Returns that don't offer a retail incentive beyond a refund are a forgotten consumer convenience that does nothing to recoup revenue or improve consumer loyalty. Return policies coupled with a robust consumer incentive program can be part of a retailer's overall growth strategy, helping retailers both grow and retain sales.

The latest Consumer Returns in the Retail Industry Report published by NRF and Appriss® Retail shows that overall returns represent 14.5% of retail sales. Returns of online purchases are consistent with the overall returns rate, amounting to a whopping $247 billion for U.S. retailers.

With billions in revenue at stake, retailers must adopt tactics that provide consumer incentives to recapture revenue and deliver net new sales. It's not just a monetary reward for retailers; customized retail incentive programs also help enhance the consumer experience during returns.

Traditional retail returns are missing true consumer incentives  

Traditional retail returns are simply one-sided transactions that the consumer hopes are easy and frictionless.  

For returns to benefit both retailers and consumers, retailers need to create consumer incentive programs that improve the consumer experience by offering retail rewards during the return process.  

Ultimately, retailer marketers need to think towards consumer incentive programs that not only make returns painless but also memorable.

Today, retailers utilize a variety of returns policies and strategies to make it easy for shoppers to return online purchases such as:  

• Free return shipping 
• Options to return online purchases at the retailer’s brick-and-mortar location 
• No packaging/no label drop off at third-party locations 
• Refunds without shipping back the item 
• Refunds with an ask that the item be donated to a local charity

Retailers run a very real risk of losing the consumer’s future business if the return is not handled well or the shopper is not given any additional incentive to turn disappointment into delight.

However, all these return programs result in additional costs for the retailer on top of the lost revenue of the returned product. Return shipping costs, quality checks of returned merchandise, restocking expenses for returned merchandise, fees paid to third-party returns locations, and managing and approving refunds even when the physical product is not returned all impact the bottom line.  

On the consumer side, a return begins with disappointment no matter what return option is used. The shopper wanted the product when they ordered it, but something wasn’t right, so now they must go through the hassle of returning it. Consumer loyalty is built through engagement, which happens even when the retailer isn’t making money. But, many retailers run the risk of losing future business if a return isn’t executed seamlessly or the shopper doesn’t receive any additional retail incentive to turn their potential disappointment into delight. 

One-size-fits-all retail incentives are not the answer

The retail returns experience is critical – only 85-95% of those who return in-store make another purchase during that transaction – this is why it’s critical to offer more personalized consumer incentives to immediately recapture revenue. And one-size-fits-all consumer incentive programs are no longer a sustainable long-term strategy for meeting consumer expectations. Retailers need to leverage retail incentives to guide consumers toward more preferred behaviors. 

Just like blanket return policies can alienate loyal consumers, one-size-fits-all post-return incentives can do more harm than good. The key is to understand each consumer at the point of return to be able to offer the best incentive for that person. For example, a consumer who initiates an online return and indicates that the size was wrong can be informed during the return that the item is in stock in the correct size at a nearby store and be provided with a discount coupon to apply to purchases made in-store. The retailer saves return shipping and restocking expenses and earns additional revenue from incremental sales due to the discount incentive.  

In fact, an analysis of Appriss Retail client data for the 12-month period ending Nov. 30, 2022, discovered the following: 

Key behaviors of consumers who are offered retail incentives to return online purchases in-store:  

• 39% increase in purchase transactions 
• 34% increase in revenue 
• 25% increase in gross profit 

Even better, consumer loyalty created by the incentives improves the performance of key metrics for weeks following the return: 

• 8% increase in shopping trips 
• 9% increase in spend per trip 
• 8% increase in gross profit per trip 

As we can see, returns tied to customized consumer incentive programs are important to the post-purchase experience. Not only can retailers preserve potential lost revenue, but these curated offerings help differentiate themselves from other retailers through a more personalized consumer experience. 

AI can help build customized retail incentive programs

Delivering the right incentive to the right person at the right time after a return may sound impossible. However, with the right tool, like Appriss Engage Incentive Optimization, retailers can enhance their incentive strategies. By analyzing purchase and return data, the platform determines effective incentives to influence future purchases, enabling customized offers that boost profits and foster consumer loyalty. 

5 steps to building a customized post-return retail incentive program

Retailers should approach their post-return retail incentive programs as a balancing act between limiting lost revenue and improving consumer loyalty.  Ultimately, the right program depends on the retailer, the consumer, and the product(s) being returned. The following steps were developed to assist retailers with their current and future retail incentive strategies. 

1. Determine your business objectives

Goals can be based on the need to increase margin, drive traffic, make Buy-Online-Return-In-Store (BORIS) returns more profitable, move soon-to-be-discounted items, or other critical initiatives. You may discover that your goals are common across your retail chain or unique to a region, district, individual store, or ecommerce transaction. 

2. Identify the variables that drive your sales

Develop targeted rewards driven by the consumer’s past behavior, loyalty program membership, location, transaction date/time, which items are purchased or returned, or other variables specific to your business. Rewards may be offered as a thanks for continued patronage and to drive new sales and increase margin (or other objectives) based on shopping behavior. 

3. Select the right targeted incentive

Match incentives to specific shopper behaviors to drive actions that meet your objectives, such as maximizing margin. Appriss® Engage utilizes scientific models to predict the shopper’s chance of purchasing and dynamically selects the appropriate, optimized offer. 

4. Utilize multiple offer types

Don’t settle for the one-size-fits-all solution. With the power of AI and machine learning, you can create as many incentives as you need to build consumer engagement and loyalty while minimizing the impact of returns on your bottom line. 

5. Determine the best delivery methods

Do your consumers respond best to offers delivered at the bottom of a receipt, via an app, or a text message? Do shorter or longer expiration dates affect the incentive's use? Platforms like Appriss Engage allow for Incentive Optimization and empower retailers to test incentives to find the right ones for their business. 

Build a better returns program using customized incentives 

The time has come to recognize the potential and value of a well-defined returns strategy fueled by artificial intelligence. The lasting impact on consumer behavior and revenue is measurable and fully attributable to increases in visits, consumer spend per visit, and margin contribution for weeks after receiving the incentive. The consumer gains a truly differentiating experience, and you gain insights, reduced operational costs, and increased profitability.

Editor's Note: This post was originally published in February 2024 and has been completely revamped and updated for accuracy and comprehensiveness.