Returns

As J. Peterman said on Seinfeld ... "well that looks like a lot of words"

The omnichannel thesis loves free returns. 

Have you ever actually analyzed how customers who return merchandise behave?

First, assume you have three customers.

• Customer #1 = Spends $100, Keeps $100.
• Customer #2 = Spends $150, Keeps $100.
• Customer #3 = Spends $150, Keeps $150.

Which customer is most valuable?

This one is a fun exercise. It generally requires a bit of regression nuance to parse out the value of the $50 that is returned. In most projects, Customer #2 is more likely to repurchase in the future than Customer #1 but less likely to repurchase in the future than Customer #3. In terms of value, Customer #2 is less valuable than Customer #1 because of the costs associated with the return.

Second, there is a limit where returns behavior becomes punitive. A whopping thirty-two years ago at Lands' End we used the Hyperbolic Tangent Function to model returns behavior (we used this function because we had customers who returned more merchandise than they purchased ... ponder that one). We learned something interesting (I shared this with you previously).

• Any customer purchasing at least three times and returning at least 70% of what they purchased was a customer we didn't want to market to anymore, because that customer would return 60% of future merchandise ... the relationship would not be profitable.

In 1993 that was a big deal ... it meant that the 13-50 catalogs this customer would normally receive were reduced to maybe four. And wowzer, did the customers who went from 13-50 catalogs per year to four HOWL. I caused our call center employees a bunch of grief.

In 2025, why does the high returns customer deserve ten (10) email campaigns per week? Why not cut that number down from ten to two? You are not stopping the customer from buying from you ... you are simply cutting back on marketing to the customer who wants to return stuff.

Perform the analysis, and do something!