How Can Enterprises Cope With High Return Cost?

How to deal with high return cost?

In traditional business practice, the expected sales return is often considered in the cost of the current period when the sales forecast is carried out. This management method tends to underestimate and neglect the cost of return.

According to Accenture's performance excellence research, the consumer electronics industry in the United States has generated high costs due to return, accounting for about 9% of the total shipments of the industry.

In this industry with a very small profit, "customer experience" has become a key factor for enterprises to stand out from the fierce competition. This is not only a financial problem, but also a threat to the growth of future enterprises.

If we take a positive and effective way to avoid the problem of customer returns and improve the processing flow of returns from the source, enterprises will be able to surpass their competitors and significantly improve their profits and achieve excellent performance.

According to the American Consumer Electronics Association, in 2013 alone, the total value of consumer electronics shipments reached US $202 billion 800 million in the US alone.

According to Accenture's performance excellence research, the cost of return from the whole industry accounts for about 9% of the total value of the industry's shipments.

Globally, the losses caused by returns will be even more alarming.

Research shows that the total cost of return is about 5-6% of manufacturer's income and 2-3% of retailer's sales income.

Accenture's research found that most businesses in the consumer electronics industry are not very concerned about the cost of return, and enterprises that are trying to take various measures and hope to reduce the cost of return as much as possible are few and far between.

For typical consumer electronics enterprises, only quality assurance and maintenance costs (about 29% of the total return cost) are included in the relevant cost of product return.

Accenture estimates that the average return rate of consumer electronics is between 11% and 20%. As shown in Figure 2, 2/3 of all returns (68%) belong to NTF, which means that the equipment meets the manufacturer's standards but fails to meet the expectations of end users.

The proportion of returned goods was 27% because of "buyer's regret".

Only 5% of the equipment returned due to equipment malfunction or defects.

In the total cost of return, the defective products accounted for 20%.

If manufacturers and retailers can reconsider the existing solution to return problems and reduce the proportion and impact of NTF and buyer's return, they will significantly reduce the loss of profits.

Accenture's scenario analysis shows that the NTF return rate is reduced by 1%, and the return and maintenance costs of retailers and manufacturers will be reduced by about 4%. For large consumer electronics retailers, it will save about 1% of the cost.

The seriousness of the return problem is that once the product returns, the company will face huge customer loyalty costs.

For example, some studies have shown that:

If there is a return, more than 60% of the returns will take place within two weeks after the purchase.

25% of those who choose to return products for whatever reason are no longer buying this brand product.

The cost of winning new customers is five to seven times the cost of retaining existing customers.

Therefore, the "loyalty factor" brought about by quality products and good brand experience may be more important than the cost savings brought by reducing the cost of return, and can bring more benefits to enterprises.

Based on the total cost of returns and the hidden costs associated with customer loyalty, enterprises should improve the return problem as an ordinary business approach.

By reformulating the return strategy, consumer electronics companies will closely cooperate with manufacturers and retailers, effectively improving the return rate, significantly improving profitability and customer satisfaction, and promoting shareholder value growth.

To solve the return problem comprehensively, enterprises need to pay attention to the two links of return prevention and return processing.

Return prevention helps enterprises to reduce NTF return ratio, seize competitive opportunities, and ensure customers enjoy more satisfied experience when using products.

In addition, through reconsideration of the return process, enterprises can also significantly improve their performance.

Accenture research finds that there are still many unused spaces in the existing network of return and maintenance.

Because we can not completely eliminate the return, enterprises need to deal with returns more skillfully, and seize the opportunity to cut costs.

Through studying the return practice of consumer electronics manufacturers and retailers, Accenture has put forward a series of strategic recommendations for the prevention and handling of returns.