The analysis showed that customers who purchased at least three times, and returned at least 60% of their merchandise, were unprofitable.
We rolled this program out in 1993. Basically, we stopped mailing customers who returned most of what they purchased.
It took a few weeks, but the complaints started to roll in. "I'm a great customer, I deserve a catalog!" Our customer service reps looked at purchase transactions, and agreed. "Kevin, this is a great customer, what the heck are you doing?"
Eventually, the complaints were so loud, and in such significant quantity, that we had to relent a bit ... we sent catalogs to customers quarterly instead of monthly. The complaints continued from all corners of the world ... except from the office of the Chief Financial Officer ... those folks thoroughly enjoyed a $1,000,000 increase in annual profit coupled with a 1-2 point drop in the return rate.
Today, there is no reason whatsoever to market to customers who return too much merchandise. You have a website that is open 24/7/365, so the customer isn't being cut off from your brand.
Take a look at this example ... this is typical.
When you stop marketing to this customer, yes, the customer spends less, significantly less. But look at the impact on the profit and loss statement!
You can't see this, of course, unless you're willing to do three things.
- Measure returns on a customer level.
- Work with your CFO to quantify the actual cost of each item that is returned.
- Test not mailing customers who return a lot of merchandise.
So stop marketing to high returns customers! There's no reason you have to incur losses.