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Leveraging Reverse Logistics to Increase Customer Loyalty and Operational Efficiency

by Jonathan Dampier, VP of Marketing, Strategy and Strategic Alliances

Reverse Logistics Magazine, Winter/Spring 2006

Implementing an efficient reverse logistics strategy can be a winning approach for retailers as they look for ways to improve the shopping experience and boost customer loyalty. According to a December 2005 survey conducted by Harris Interactive, 92% of consumers said that they are likely to shop with a retailer again if the returns process is convenient. Conversely, the same poll found that 82% of consumers would not shop again with a retailer that has an inconvenient return process.

Returning an item to a retailer automatically carries with it a negative connotation in the mind of a consumer. Anytime a customer orders merchandise direct from a retailer, and receives a product that differs from their initial expectations—it doesn't fit, it's the wrong color, or it just isn't what they want—the merchant's relationship with that customer may already be in jeopardy. When you add to the customer's initial product disappointment the hassles associated with returning the item, such as waiting in line to pay for shipping, wondering if the returned package has made its way safely back to a retailer, or a delay in the issue of a refund, the merchant is in danger of losing the customer's business in the future.

Most retailers handle returns as individual, disjointed transactions and fail to take into consideration the entire returns process and its impact on the customer and operations. In most cases, merchandise has to arrive back at a warehouse before a return can be acknowledged, creating uncertainty on the part of the customer and inefficient operations for retailers. And, because a return can take several weeks to complete this process, the retailer often loses a significant amount of sellable time during a product's life cycle, possibly sacrificing profit margin.

The first step toward a successful reverse logistics program includes integrating the customer's order information onto a return label barcode. Retailers should generate pre-paid intelligent return labels onto outbound order summaries. Within days after the customer drops the package into the mail stream, the barcode can be scanned and customer return information reported back to the retailer, allowing customer service departments to proactively address customers' exchange or credit needs earlier. Through the utilization of an event-based marketing service that delivers a personalized email according to customer type (first-time buyers, loyalty club members or high value buyers), customer loyalty is improved through the reassurance that their returns have been received and processed. Such communications can be delivered within three days of the customer dropping the return in the postal system.

In order to maximize visibility into the reverse logistics process, retailers should also look for a returns management solution that offers online Return Merchandise Authorization (RMA). RMA enables customers to choose which items are being returned and the return reason prior to return shipment. This step allows retailers to aggregate valuable information about each item being returned and determine how each parcel is shipped and to which destination based on asset value, reason for return, order date or serial number. This advance visibility results in greater inventory management and eliminates the costly step of sorting packages one-by-one to determine the package's destination.

Warehouses can also capitalize on returns visibility at the earliest stage. By receiving information about a return ahead of package arrival, an operations team can better schedule work force, reduce spikes in the workload and prepare for deliveries. In addition, an unexpected increase in the number of a specific product being returned could help indicate a potential problem, allowing retailers to prepare a recall, negotiate a return-to-vendor with suppliers, or quickly replace problem merchandise in order to save the sales transaction.

Increased warehouse efficiency and customer loyalty and retention aren't the only benefits retailers who implement reverse logistics programs can experience. Although supply chain processes still focus mainly on the outbound link to the customer, those retailers that focus on returns stand to gain an advantage in the marketplace. Improved returns management can significantly reduce costs and provide valuable information to a retailer's planning cycles. More importantly, improved and easy-to-use returns management processes can increase customer retention which ultimately results in higher sales for the retailer.

A well-managed reverse logistics program can distinguish a retailer from competitors and enhance customer loyalty. By delivering the greatest customer convenience and at the same time realizing maximum operations control, retailers are turning returns into an integral part of business success.

Jonathan Dampier brings with him over 18 years of marketing experience with Fortune 500 companies. Jonathan served as a vice president and led marketing and branding initiatives for companies such as First Union, Wells Fargo and SunTrust; with a primary focus on B2B solutions targeting C-level executives.

Reverse Logistics Magazine, Winter/Spring 2006

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