<strong>Why refunds can lead to repeat purchases</strong>

Kelli Trapnell

·

June 16, 2021

One of the most common questions we hear at Loop is: if a shopper engages in a return event, like an exchange or a refund, does that make them more likely to come back for a repeat purchase?

To answer this question, we decided to go straight to the source. We dug through our database to see what it could tell us about return events and their correlation to repeat orders. Bottom line: when people engage in your returns experience, it’s great for business.

Learn more in The Future of Merchant Growth.

In this blog, we’ll discuss:

• The impact of returns on your repeat purchase rate
• 3 strategies to boost your repeat purchase rate

The impact of returns on your repeat purchase rate

By analyzing our data, we found that refunds and exchanges can actually be better for your bottom line, because they result in a better repeat purchase rate. To get these results, we looked at the purchase behavior of live Loop brands as at January 1st 2020 and analyzed whether a 1st purchase returned for a repeat purchase by May 2021. Our findings below are based on hundreds of thousands of orders from over 500 brands.

Let’s take a closer look at each return event to understand exactly what’s happening.

No Return

The least likely repeat purchase group were those who made no return.

We recently surveyed over 300 consumers who regularly shop online. Our most eye-opening finding was that almost 90% of shoppers have kept a product they wanted to return. When customers keep an item they don’t love, they’re unlikely to make a repeat purchase. This is going to negatively impact all your most important metrics, from CLV to AOV.

Refund

Shoppers who requested a refund saw a 17.8% increase in repeat purchases compared to shoppers who didn’t engage in any type of return event.

While it seems counterintuitive that a shopper who asks for their money back would bother shopping with you again. But here’s what’s happening: even if the shopper didn’t like the product they purchased from you, they still felt that your return process was easy enough to engage with. They now know what to expect if they end up with the “wrong” product shopping with you in the future. This reduces their perceived risk of making a future purchase, increasing their likelihood of repeat purchase.

Exchange

Shoppers who exchange for a new product have a 33.80% higher repeat purchase rate than those who have never returned an item. It’s important to note that we did not count the immediate exchange when evaluating whether shoppers in this group came back again. The shopper had to come back for a brand new purchase to be considered part of the exchange group.

Exchanges create more repeat purchases because when a shopper gets the “right” product, they will have a better experience with that product and your brand.

Returns

Shoppers who didn’t have a Loop return on their first order had an average of 116.5 days until their second order. Shoppers who did have a Loop return on their first order had an average of 90.8 days until their second order.

In other words, when your shopper engages in a return event, you’re not only more likely to see them come back for a repeat purchase—they’re also going to come back faster. Specifically, they’re going to come back an average of 25.7 days earlier, which is a 22% reduction in “time to next order” for customers who returned something compared to those who didn’t.

3 strategies to boost repeat purchases using returns

Now that we understand the hierarchy of return events in relation to repeat purchases, what can you do as a brand to get your rates up? Here are the three strategies you can implement.

1. Create a shopper-focused policy

Your return policy is the first checkpoint when it comes to a shopper deciding whether or not to make a return. In fact, 67% of shoppers check a return policy before making a purchase. Here’s what they’re looking for:

• Answers to common return questions, such as the return window length and shipping costs
• The perceived risk of purchasing from your brand
• A sense of how easy it’ll be to engage with your return process

So if you have a rigid, unfriendly return policy, your shoppers are less likely to make a return. This means fewer repeat purchases for your brand. On the other hand, a flexible, shopper-centric policy (like the Allbirds one below) leads to more returns and repeat shoppers. Make sure to check out our best practices for creating a dedicated return policy page if you’re not sure where to start.

2. Make the returns process easy

OK, now let’s talk about your actual return process. Your shopper read your return policy and decided that your returns experience is worth engaging with. Now you have to make sure it actually is—especially since 92% of shoppers have stated that they’ll buy something again if returns are easy.

One of our best recommendations is to use an on-demand return portal. Take a look at the one from Brooklinen as an example. The benefits:

• Saves time for both the shoppers and your support team
• Creates a clear process to minimize confusion or frustration
• Empowers your shoppers to take charge of their returns, rather than relying on the responsiveness of a support representative

3. Incentivize exchanges over refunds

We saw in the data that refunds are better than no returns. But what we really want you to focus on is the fact that exchanges are king. So, where possible, you need to find opportunities to turn your refunds into exchanges.

Here are some of the most popular strategies we recommend. The basic premise is that you want to apply incentives to exchange.

• Offer free return shipping on exchanges. For refunds, charge a small shipping fee. If you’re not convinced this will work, check out how effective this approach was for a footwear brand we partner with. After two months of charging a shipping fee, exchange rates climbed 25.4%, and refund rates went down by 28%.
• Extend the return window for exchanges. We recently ran an analysis and found that 80% of the returns we process occurred in the first 21 days. Since you know most shoppers will return their items in three weeks, offer a more generous window for exchanges than refunds like Mizzen + Main. This tiered approach shows the shoppers who are giving your brand a second chance that you value their loyalty and want them to have as much time as they need to get the right product in their hands.
• Provide a bonus credit for exchanges. This feature we offer at Loop gives shoppers additional purchasing power above the value of what they’re returning. Take a look at how Baseballism takes advantage of this offering. For shoppers who opt for an exchange over a refund, the brand offers an extra $5 to shop with as an added incentive.

In short: yes, return events lead to more repeat purchases. However, don’t forget that there are differences in the repeat purchase rates even among return events, with exchanges rising to the top in that regard.

If you want to learn how Loop can help you create a returns experience that keeps shoppers coming back, get in touch with our team.

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