Why you should allow returns on personalized products
Consumers are used to generous product return policies online. Companies recognize that this makes the buying decision easier. But most companies limit these policies to standard products, and custom products are generally non-returnable. In this article, the authors claim that this is an error. Extending easy returns to personalized products will encourage consumers to engage more with the brand and also reduce the likelihood of returns occurring in the first place. This will result in more loyal customers and higher profits. The authors also explored the conditions under which companies can expect a win-win outcome by adopting a lenient return policy for personalized products. Four factors seem essential: making personalized products more retrievable; adopt technological innovations that reduce the cost of personalization; reduce or eliminate customization costs; and provide improved and user-friendly interfaces.
Product returns are exploding. According to the National Retail Foundation, in 2020 consumers returned approximately $430 billion in merchandise to retailers, or about 11% of total US retail sales. Returns from online shopping are particularly high at 30% on average, having doubled since 2019 due to the increase in online shopping during the Covid-19 pandemic.
The high volume is mainly due to companies’ widespread adoption of lenient return policies – they recognize that consumers are more willing to purchase a product if they know they can return it in the event that the product does not fit. to their expectations. For online transactions, lenient return policies are even more crucial as consumers cannot touch or smell the product before purchasing it. Returns are seen today as a necessary cost of doing business.
This leniency, however, has generally been limited to standard products. It has not been extended to personalized products, which have become an increasingly important part of companies’ offerings. Consumers can choose the base color of their jeans at Levi’s or the body material of their guitars at Fender, or engrave their name on their baseball bats at Marucci Sports, but products like this aren’t usually easily returnable. .
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A few companies oppose this trend. Consider the different approaches taken by Nike and New Balance, both of which sell a variety of standard shoe designs and offer options to customize some of them, allowing consumers to choose colors for different parts of the shoe and add engraved text. Both companies have similar return policies for standard products, in that they both allow returns for a full refund of the sale price. But while Nike states that “you can return items for any reason within 60 days. These include personalized Nike By You sneakers,” New Balance’s policy states that “non-returnable items include shoes. personalized”.
So, who is right ?
We explored this question in a recent research paper titled “Customization and Returns” (forthcoming in management science) and found that the principle of adopting lenient return policies for standard products and strict ones for personalized products is generally correct. However, this approach misses an important factor that companies could also consider.
Standard products are obviously easier to resell than personalized products (who would buy a product with another name sewn on it?) and would cost less to produce. It makes sense to facilitate their return. But these are not the only factors to consider: the volume of returns also matters. Companies that offer custom products report a 40% drop in returns.
This happens for two reasons. For starters, consumers learn what they really want by interacting with personalization engines – and as a result, the end product is more likely to match their desires. For example, Sephora offers its customers the possibility of virtually trying on makeup products to understand which one suits them best. Moreover, personalization is akin to the co-creation of products between the company and the consumer creating an “attachment” to the company which further reduces the likelihood of a return.
We found that these behavioral incentives not only increase the overall demand for products, but also cause consumers to switch from buying standard products to buying personalized products. Instead of buying standard products and returning them at high rates, consumers are customizing them and then returning at much lower rates. Companies with lenient return policies for personalized products could, under certain circumstances, benefit from both increased sales (due to leniency) and lower overall returns (due to lower perceived risk). for the customization customer) – a win-win result.
Obtain the win-win result.
We explored the conditions under which we could expect a win-win outcome by adopting a lenient return policy for personalized products. Four factors seem decisive:
Make personalized products more retrievable.
This would reduce the net cost of a return and can be achieved by modifying product design or finding secondary markets for returned products. For example, Nike sells returned shoes, both standard and custom, in a few of its Nike stores in the United States and plans to expand this service to other locations. Big data and AI-based solutions could also help, perhaps in finding consumers whose color preferences and even initials match those of a returned personalized product.
Embrace technological innovations that reduce the cost of customization.
Advanced manufacturing technologies, such as robotics and 3D printing, have reduced the cost difference between producing a custom product and a standard product. For example, the Italian brand XYZ Bag has created a collection of handbags, called “DADA”, which can be fully personalized at low cost through the use of 3D printing. Mass customization is widespread these days; it refers to the ability of companies to produce large quantities of personalized products without giving up the efficiency of mass production. Thus, companies have some leeway to adjust the price markup of personalized products, which in turn would encourage more consumers to personalize them.
Reduce or eliminate customization costs.
Many companies charge customization fees and change them regularly to find their optimal value. Given the potential to reduce returns through personalization, businesses might consider reducing or even eliminating personalization fees to encourage customers to personalize. Nike and Apple Watch are two examples of companies that do this.
Provide improved and user-friendly interfaces.
Finally, companies could improve the very personalization process by which consumers learn their preferences, reveal them to the company, and begin to love their purchase before it arrives. A successful customization interface uses high-quality 3D images and allows customers to gradually disclose customization features. For example, Rimowa indicates the customizable parts of the luggage directly on the image: wheels, handle and label. By clicking on each of these components, the consumer opens the associated configurator and can customize that particular component.
Thanks to incredible technological advances in manufacturing and logistics, companies are able to offer personalized products at scale. But this ease also upsets traditional thinking about returns. As our work shows, allowing customers to return personalized products could encourage them to switch from standard products with higher return rates to personalized products with lower return rates, which could both increase profits and reduce the returns.