Satisfaction guaranteed


September 30, 2013

Ankita Rai , Business Standard

New Delhi , September 30, 2013

starbucks mumbai In the cancellations and returns section on its website, e-commerce poster boy Flipkart says, "We want you to have an absolutely headache-free shopping experience…In case there is an issue with the product you have received, our Free & Easy Returns promise has got you covered." On its part, lifestyle products portal touts a "30-day no questions asked return policy." The concerned section on the website says, "Though we strive to give you a great customer experience each time you shop with us, if at all you are not 100 per cent satisfied with your purchase, you can return your order for a full refund of paid price.", which describes itself as India’s favourite online mall, also guarantees a full refund if a customer is not satisfied with a product. The website claims, "Guaranteed resolution of complaints within a maximum of 30 days/Full refund if not resolved."

Get the drift? If attracting consumers to pay up for a product they could neither touch nor feel was the biggest task in the first phase of the industry’s growth, handling product exchanges and returns is emerging as the next battlefront of e-commerce companies in India. It is easy to see how easy return can offer an e-commerce site a strategic advantage: The two windows open to customers to get a feel of an e-commerce brand are the website interface and the order fulfilment process. If customers see there is something missing in either of these, chances are they will never get back for a repeat purchase. Needless to say, with very differentiation in terms of products on offer and customer interfaces, e-commerce sites are bending over backwards to make sure consumers are at ease even when they revoke an order or send back a purchase.

This is a particularly big headache for lifestyle products companies.

"The industry average would be under 20 per cent but the return rate can be as high as 60 per cent in the case of fashion apparel," says Devangshu Dutta, chief executive officer, Third Eyesight. "In categories where products are more or less standardised, such as, books and DVDs, returns are low-may be in the 7 per cent range," he adds.

Like with everything else, it is easy to claim you have a great return policy but it is difficult to pull it off without a hitch. To be fair, the whole process of return management can leave you in a daze. First, reverse logistics is much more than just management of product returns. It involves putting together checks that minimise the number or possibility of returns, disposal, gatekeeping as well as all other supply chain issues after the sale of a product. "In 70 per cent of the cases, the cost to process the return (pick up, ship back, depreciation, refurbishment) can be higher than the value of the product," says Hitendra Chaturvedi, founder & CEO, Green Dust, a pioneer in reverse logistics.

Now look at the kind of imponderables it entails. The uncertainty regarding the kind or quality of return, the generation time or the distribution of the reverse logistics makes it difficult to put it down to a routine. Also, the scale benefits of storage and transportation would not apply to returns/exchange due to the random and sporadic nature of product transfer. Third is the problem of cash flow.

If cash on delivery (COD) has made life easier for customers, it has also added to the misery of merchants in case of a return. The problem is that the COD system creates a delay in a payment to go through. Courier companies generally hold the money for two weeks, which means the e-commerce company has to restock inventory before the cash from its last sale has arrived. Then there is the logistics fee. Major logistics companies charge the e-commerce firm a transaction fee (Rs 50) plus a percentage of the amount (about 1 per cent) collected. Some courier company also charges an extra Rs 50 to Rs 100 as return fees to ship the merchandise back to the point of origin.

You can imagine the plight of merchants. Now let’s look at the options available to e-commerce companies by way of managing the whole process efficiently and keeping the costs down.