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With the ease of online purchase returns, retailers struggle to reduce the chances of a return. Researchers Shashank Rao and Kang Bok Lee discover that product packaging can be an easy solution to save on losses caused by returns.
There is considerable, broad reaching research devoted to factors influencing online consumer product purchasing decisions, including the role a vendor’s return policies play in driving consumer buying behavior. The stakes involving returns of products purchased online are significant—in the U.S. alone, product returns are estimated to cost online retailers $550 billion annually.
The ease and flexibility of returning an ordered product can have a significant impact on customers’ initial buying decisions. Consumers want to know that they can return products purchased online with minimal effort and without question. Recent research indicates that 92% of online shoppers report that they are “likely” or “highly likely” to award their business to sellers who offer easy options for returning merchandise purchased online.
But that’s not where the story ends—or at least, it shouldn’t end there. While accommodating and prominently displayed return policies have been successful branding strategies in securing online sales at the front end, far too little thought and scant resources have been devoted to the “last mile” of consumer branding—the customer experience at the point of home delivery. In particular, the role of packaging in cementing last-mile consumer satisfaction can be a critical factor in reducing product returns. Yet, the role of product packaging in generating online sales satisfaction has been largely overlooked.
Shashank Rao, Jim W. Thompson Professor of Supply Chain Management
Research co-authored by Shashank Rao, Jim W. Thompson Professor of Supply Chain Management at Auburn University’s Harbert College of Business, and Kang Bok Lee, EBSCO Associate Professor at Harbert in the Department of Systems and Technology, asked the question: “Does visually enhanced packaging influence merchandise return likelihood?" Their research "On packaging and product returns in online retail—Mailing boxes or sending signals?" was recently published in the Journal of Business Logistics. As part of their research, Rao, Lee and their co-authors collaborated with a major European online retailer of fashion accessories to conduct a natural experiment wherein the retailer sequentially enhanced the packaging of their shipped products, first by providing a highly visually appealing inside packaging and then subsequently by adding a premium outside shipping package.
Kang Bok Lee, EBSCO Associate Professor of Systems and Technology
They measured three hypotheses—improving premium packaging, improving secondary packaging and improving both. Their research found significant reductions in returns for all three approaches, with the largest impact on reducing returns coming from improving both primary and secondary packaging.
Importantly, their research also found that packaging is potentially one of the most effective improvements online retailers can make from a financial return on investment perspective. According to the results of their study, the added cost to the retailer of instituting premium packaging was less than 10 cents per shipment, yet this move resulted in added gross profit of close to $14.00 per order stemming from fewer returns. Applied to all orders in their sample, that would mean 6,600 fewer returned parcels for every 100,000 products purchased and sent to customers—saving the retailer approximately $1.5 million.
For one, product returns represent a significant expense impacting the financial value chain of online vendors from ordering through delivery and sale acceptance. Average outbound delivery costs for consumer purchases average $5.00 per shipment and returns processing cost online retailers an average of an additional $10.00. That’s a loss of $15.00 on average for every product returned with no offsetting contribution to revenue. In short, costly returns drive down profitability.
Equally important, a vendor’s brand is damaged whenever a customer is so dissatisfied with what they receive and how they receive it that they choose to send the product back. In addition to the cost of a lost sale, this negative customer experience reduces the likelihood of a consumer purchasing from that vendor in the future.
The overarching objective for online vendors is to move potential purchasers from an uncommitted assessment position to a confirmed sale. Vivid photography, detailed product specifications and glowing customer testimonials are just some of the many sales and branding strategies employed to move potential buyers to checkout. All these efforts can be for naught, however, if they fail to extend to the moment of truth—when the customer receives what they ordered, opens the box and views the actual product for the first time.
Unlike business-to-business supply chains, where product presentation has little value during distribution and packages are mostly designed for low-cost and damage-free shipment rather than for appearance, in consumer online retailing the appearance of the package may indeed be of relevance in the customer's overall assessment of the item's quality and, hence, customer satisfaction. Despite this, substantial volumes of online purchases continue to be shipped in plain brown cardboard boxes with plain void filler material, serving merely the utilitarian role of protecting the shipped item, with limited visual appeal when it comes to end-customer presentation.
There are two ways in which retailers attempt to prevent product returns—gatekeeping and avoidance. Gatekeeping imposes barriers to keep a customer that is inclined to return a product from actually returning it, including rejecting products sent back because they have been used, damaged or returned too late.
Avoidance measures, on the other hand, reduce the likelihood of returns by mitigating potential reasons for customers to return an item upon receipt, and these enticement-based approaches are considered to be more effective. Research has suggested that elements of branding and product presentation at the time of ordering entice the potential purchaser and set expectations to be realized at the point of delivery, thereby reducing returns.
Rao, Lee and their co-authors took these point-of-sale avoidance measures further. They researched last-mile branding and packaging practices and whether, by taking robust branding all the way through to product delivery, returns would decrease.
Following their natural experiment, they concluded that, indeed, improving product packaging all the way through order fulfillment can play a critical role in reducing the incidence of costly product returns. The researchers found that last-mile product presentation—and acceptance—is enhanced by improving the item's appearance through visually appealing primary and secondary packaging.
Strategies to extend branding to last-mile packaging, especially measures that address both primary and secondary packaging, can deliver extraordinary return on investment results for online retailers. The researchers found that last-mile product presentation—and acceptance—is enhanced by improving the item's appearance through visually appealing primary and secondary packaging. Extending corporate branding efforts all the way to the packaging of delivered products represents a compelling opportunity to minimize product returns and reduce corresponding negative impacts on financial results.
It is time for more online retailers to recognize this proven approach and get with the program.