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New Forrester Research study shows how to use your return policy to boost profits and gain market share.

With the economy plummeting, many eCommerce retailers are frantically searching for ways to boost their sales and remain profitable. Many have turned to using sales and other promotions to acquire new customers while many more have resorted to targeting their existing database of customers in an attempt to encourage increased spending from their core customer base.

While both of these methods are responsible for great successes for many online retailers, it is often a case of everybody making the same moves, thus eliminating the competitive advantage that they could provide.

In a recent Forrester Research study commissioned by UPS, researchers suggested a third, often neglected method, for gaining competitive advantage, acquiring new customers, and ensuring customer loyalty. They suggested that by providing a free or subsidized return policy, retailers can build customer trust, encourage increased online spending, and differentiate a company from its competitors.

Four out of every five (81%) people interviewed for the study agreed that they are more likely to buy from a retailer that makes returning products easy and that same percentage also agreed that they were more likely to remain loyal to a company that has a generous return policy. On the other side, seven out of ten (73%) of consumers are less likely to buy again from a company with a difficult return policy.

This suggests that the vast majority of consumers are influenced both to buy from and remain loyal to eCommerce retailers with generous return policies. It is surprising then that the majority of online sellers do not offer return policies that encourage sales or loyalty. The study found that many retailers saw the cost of offering free returns to be too high and instead there was an increased focus on reducing returns altogether.

There are a few companies, such as Zappos and Netflix, which have redefined returns from an evil to be avoided at all costs to something that increases loyalty and boosts profits. They know that returns are an unavoidable reality for online sales because consumers can not touch, feel, or try out products before they buy them. Therefore by demonstrating to customers how easy and inexpensive returns are, these companies have managed to garner a significant competitive advantage.

According to the survey, over half (55.2%) of respondents saw the difficulty of returns and the cost of re-stocking fees to be the biggest problem with online purchases. This is likely because on average, people spend 27 minutes and $7.85 on returning an item they purchased online. It is no surprise that the top frustrations when returning an item are paying for the return and actually going to a shipping carrier. Researchers also found that because of these returning hassles, one-fifth (22%) of consumers have reduced their online spending habits.

On a more positive note, consumers are far more likely to make purchases from retailers who offer flexible return policies across all vertical markets. This trend is particularly noticeable in soft goods where almost nine out of ten (87%) respondents were likely to return to a retailer with a flexible return policy compared to only two out of ten (19%) respondents who were willing to return to a retailer with inflexible returns. Similar results were found for grocery and convenience items, media, other hard goods, and electronics. Consumers were also much more likely to recommend a company with a flexible return policy then one that did not make returns easy (85% compared to 11% for soft goods).

It is also interesting to note that when asked about the importance of free returns compared to free shipping when making a buying decision, the results were almost equal. This means that a company offering free shipping could have equally strong results offering free returns while offering both could allow a company to gain a significant advantage over the competition.

It is clear that offering free returns can have a significant impact on customer loyalty and sales patterns for online retailers. Obviously this will not be the right strategy for all companies, particularly ones that incur high shipping and return costs, but many companies can benefit significantly from being the first to offer this type of deal. Even if some money is lost to increased returns and shipping costs, the benefits of additional referrals, increased customer retention, and overall sales from offering free returns makes it an excellent way to increase market share and overall profits.

Download the Forrester Research study: Crafting a Returns Policy that Creates a Competitive Advantage Online