How the 80/20 rule can help reduce eCommerce product returns

Introduction

Reducing product return has always been a focal point for ecommerce businesses. While there is a range of content available on the internet regarding this, generalized solutions rarely provide enough results.

To gain an edge, it is necessary to have a deeper understanding of customer behavior. Identifying trends in how customers react to your brand can help you formulate effective policies to reduce returns.

While all this theoretically works, identifying trends in data is a difficult task. But this can be greatly simplified if you know what you are looking for! One such almost universally observed rule of thumb in business is the 80/20 rule.

What is the 80/20 rule?

The 80/20 rule states that roughly 80% of a phenomenon is caused by 20% of the users. This is also known as the Pareto principle. The 80/20 distribution of cause and effect is often applicable to different scenarios in business and economics.

How does the 80/20 rule define product return trends

The easiest way to make a difference in your product return stats is to understand what is going on behind the scenes. To put it simply, you need to identify the subset of customers or products having the largest impact on your returns.

And this is where the 80/20 rule comes into play. If you look at your product returns, you will see that they tend to follow the 80/20 rule in a number of ways. We will discuss 3 most common ways in which the Pareto principle defines your product return trends.

1) Product issues leading to returns

One way of looking at your product return trends is to analyze the reasons customers are returning your products. This is an easy and popular metric to look at as most ecommerce websites collect this data while accepting the return request.

While there are a lot of ways to analyze the collected data, the most convenient is graphical representation. When you represent this data graphically in the form of bar graphs or pie charts, you will notice that approximately 80% of the returns are due to a small number of causes. Alternatively, 20% of the return reasons are resulting in 80% of the returns.

This will allow you to identify the leading causes of product returns. But it is important to keep in mind the vital prerequisite of using this method - the return reasons provided in your website must be a fairly accurate representation of the actual reasons for return.

2) Frequently returned products 

If you sort your products according to the number of times they are returned, you will notice that approximately 80% of the returns are caused by 20% of the products. These can be unrelated products or comprise a certain category of products.

There are some products or categories that are more likely to be returned. For example, clothes and fashion accessories are often the leading categories. While the nature of the items is a factor, this can also be due to errors from your end like mistakes in the listing page and damage during shipping.

3) Repeated returns from certain customers 

Another way to look at your product returns data is to identify the customers who are frequently returning products. This is effective only if you have already eliminated the common mistakes made by ecommerce business.

This includes inaccuracies in product listings, proper quality control of products, and proper communication of shipping updates.

Assuming the prerequisites are met, you will notice that 80% of the returns are being made by approximately 20% of the customers. Look further into what is causing a certain set of customers to return products frequently and take appropriate steps.

If your product returns do not show the 80/20 distribution, it points towards the presence of fundamental flaws in your business model. If this is the case, you need to look at the common mistakes ecommerce business owners make in product returns and work towards rectifying them.

4 Key benefits of minimizing product returns 

Minimizing product returns can make a visible difference in different areas of your ecommerce business. We will briefly discuss 5 key benefits of minimizing ecommerce product returns

1) Lower reverse logistics cost

Product returns can prove to be costly for your business. You need to pay for the forward as well as reverse shipping and restocking of the product. All these costs are incurred while you are not generating any revenue from the order being returned.

You also run the risk of the product being damaged in the reverse shipment or fraud being committed by the customers. Working towards reducing your overall product returns can help you cut down on these costs. 

2) Better customer experience

No matter how well thought out your return processes are, no one wants to deal with the hassle of reverse shipment. The necessity of interacting with your customer service to lodge the return request also increases the potential headaches for the customer and your customer service team.

The customer experience will directly affect customer retention and repeat purchases. Always remember that repeat purchases can be immensely profitable for your businesses as you will incur significantly lower marketing costs for them.

3) Better stock availability

In case of returns, your product remains out of stock for the entire period of the order being placed to the order being returned and restocked. On top of the product being unavailable for purchase, the entire process costs you money and leads to unsatisfied customers.

Proper order fulfillment and reduced returns can significantly boost your stock availability. This is even more important for small brands and can be a game changer for customer experience and profits.

4) Reduced shipping damage

While you have control of the initial packaging and shipping, reverse shipment substantially increases the chances of shipping damage. Products improperly packed by the customers have a higher chance of getting damaged before reaching you.

No matter what your shipping and return policies are, you will eventually end up paying for this. This comes either as an upfront cost of the damaged products, or as a higher insurance rate for your reverse shipments.

Depending on your refund and restocking processes, this can also lead to unpleasant experiences with customers. As you cannot control every aspect of reverse shopping, the best way to avoid this is by reducing product returns.

4 Helpful Tips to reduce product returns using the 80/20 rule

Identifying trends in your product returns does no good unless you put the knowledge to use! We have used the expertise of our ecommerce experts to compile a list of 4 helpful tips to reduce product returns using the 80/20 rule.

1) Resolve the common issues leading to product returns

Identifying the issues causing a large number of returns can help you take appropriate steps. This is a fairly straightforward process as you already have the list of most common issues. But you will need to identify the root cause which is often obscured.

For example, if you are selling shoes, returns due to “Wrong Size” might point to quality control issues with the products or improper product listing. Pinpointing the true cause will enable you to resolve this in a cost effective way. While an improper product listing only needs you to update the pages, quality control issues will often force you to change vendors.

2) Redesign the product pages leading to returns

The first thing you should do after shortlisting the products causing most returns is update the listings. Irrespective of the product category, adding more details and images can result in significant improvements. If you are into the fashion segment, it is always advisable to add a sizing guide.

3) Seek feedback from customers returning products

Seeking feedback is the most powerful way to improve customer experience and reduce returns. Do keep in mind that most customers may not voluntarily provide feedback. You need to have a great UX for collecting feedback efficiently.

Working on the customer feedback will enable you to tackle the root of the problem. Additionally, the customers providing feedback are very likely to make a repeat purchase. In that case, a visibly improved experience will help with customer retention and brand loyalty.

4) Optimize your return policy

If your product return volumes are still higher than expected after implementing the other steps, it is time to fine tune your return policy. You can tweak your return policy to reduce the return period, or limit returns only to damaged or defective items.

Do keep in mind that a more conservative return policy can discourage potential customers. Depending on how your ecommerce business is performing, this might be a necessary evil to maintain healthy margins.

4 Most Common mistakes to avoid while using the 80/20 rule

1) Avoid overgeneralization

Many business problems are deeper than they appear on the surface. Overgeneralization and applying the 80/20 rule indiscriminately can lead to adverse results. Always study the problem properly so that you are sure of the actual issue. In case of doubts, never shy away from taking the help of an expert.

2) Do not focus solely on numbers 

Numbers play a decisive role in the sustainability of your business. But you should never forget that at the end of the day you are dealing with actual customers.

Do not blindly look at numbers without looking at the reasons and consequences behind them. While optimizing costs is important, customer experience and satisfaction plays a far more important role in the success of your business. In short, never lose the human touch.

3) Always look at the long term prospects

It might get tempting to cut costs wherever possible to boost profits. But this might not be the best thing for your long term prospects. Do analyze how decisions you take today will affect your business in the future. You should also have a clear idea about your long term plans for your business.

4) Validate your findings correctly

It is important to validate your findings before you take drastic steps. The steps you take can be expensive and have far reaching effects. Always be sure of the conclusions you are reaching by looking at other metrics to cross validate. 

Other business areas where you can apply the 80/20 rule

Apart from product returns, there are several other areas in your ecommerce business where you can apply the 80/20 rule. You can apply the Pareto principle in marketing to identify the campaigns having the highest impact. Similarly, in manufacturing, the 80/20 rule can help determine defects and inefficiencies in the process.

Another area where you can apply the 80/20 rule is in logistics. You can identify the leading causes of failed deliveries and shipping exceptions. You can also see which customer demographics or shipping partners are causing a disproportionate number of exceptions. While this can be done manually, this is best left to a dedicated logistics management service provider.

Conclusion

Correctly using the 80/20 rule can positively impact your ecommerce business by reducing product returns. But like a lot of other things in the ecommerce business, the devil lies in the details.

You need to understand how the 80/20 rule impacts various aspects of your business before you start implementing changes. When making changes, you should be aware of the effects it will have on various business processes.

Most importantly, you should remember that the Pareto principle is not a hard and fast rule that is applicable everywhere. Be aware of the pitfalls and take proper precautions to avoid them.