Reduce Return & Exchange Costs using Gift Card & Loyalty Points

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$550 billion

That’s how much online product returns are estimated to cost businesses this year. The return rates of products bought online stand at 25% while 8% for brick-and-mortar stores. Returns are a major headache for retailers. The costs associated with processing returns, resources spent on it, time spent on handling the returns, and the fact that some of the products may not find it easy to be sold again can bear heavily on retailers. This has an effect on the retailer’s profit margins, which is exactly why businesses want to ensure that the percentage of product returns are kept low.

Barclaycard researched customers who return items; here are some interesting statistics from that study:

  • 30% of shoppers purchase more than what is necessary and return unwanted items later
  • 19% say that they order multiple versions of the same product so that they could return the items after they make a decision
  • 20% of the retailers said that they increase the price of the products by 20% to cover the cost of returns
  • 33% of online retailers offer free delivery but make up for this cost by charging for delivery
  • 57% of retailers admitted that dealing with return requests affects their day

Based on a survey by Global Webindex, the most frequently returned online product categories are the following:

  1. Clothing/Shoes
  2. Accessories/Jewelry
  3. Electronics
  4. Health & Beauty
  5. Entertainment

Why do people return products?

Customers get products that might have been damaged or broken while in transit. Another reason why there are a lot of product returns is because the product might not be matching the descriptions that were written on the sales page.

  • The product might no longer be needed for the customer.
  • The size is different from what they expected it to be.
  • They ended up receiving a completely different product than what was ordered.
  • The product was purchased during the holiday season.

    Many businesses think that making product returns difficult by placing hindrances like asking for postage or making it compulsory for the customer themselves to courier it is a good choice. But an act like this will only make it difficult for customers to trust the business. It will not reflect positively on the business at all.

    In the holiday season, returns can be even more damaging to a brand because there are a lot of things that are already going on, making it more difficult for the retailer. The busiest season of the year isn’t certainly the time when retailers want to scramble to ensure smooth product returns. With holidays beckoning, businesses might want to have a streamlined process to run their business smoothly.

    When a customer returns a product, the chances of them going to a different retailer (in other words, your competitor) are extremely high. Returns are going to cost you, and on top of that, you end up sending your customers to a competitor. It has sadness written all over it. How do you stem this from happening? Given the fact that the customer wasn’t happy with the order and has decided to return the product they got delivered, you might want to look for the heavens for a leeway out of it.

    Thankfully, there is a simple solution to that.

    Leveraging gift cards and loyalty points.

    One of the biggest reasons for returns that will hurt the retailers is that “the products were bought during the holiday season.” With no wrong on the part of the retailer, having to process returns like this can be extremely disheartening. As we have mentioned already in the article, such returns can be grievously expensive for online retailers. During the holiday season, there are a lot more people who purchase items than normal, so returns and exchanges can hurt them real bad.

    Why should businesses use gift cards and loyalty points to offset the problem of product returns?

    Many customers are known to buy the product just to see how it is with no intention of actually keeping it with themselves. Since most retailers offer free product returns, there is no risk that the buyer takes, which makes it incredibly easy for the customer to do this without any repercussions. Like we have mentioned time, and again, it costs a lot for the retailer to process returns and can even directly affect their profits if there are many returns.

    The first step that businesses can do is to make the product return process as smooth as possible. Isn’t that counter-intuitive, you might ask? That’s a good question. Please do understand that not all customers are out there to fleece you. Some of them are genuinely trying to replace a product that might not be in perfect condition, or they might have received the wrong size. It is unwise to box all your customers into the same category. By offering your customers an extremely smooth product return process, you will keep them satisfied, and they will come for more.

    Here’s what using gift cards and loyalty points can do to your business:

    Increase in CLV

    Customer Lifetime Value or CLV is the amount of money that a customer spends over their lifetime. How do gift cards figure here? When a customer asks for a refund, you could offer them the choice of taking a gift card instead. To sweeten the deal, apart from the gift card, which has the same value as the product they intend to return, you can also give them loyalty points for the same value. Without spending a dime, your customer receives loyalty points. It is a desirable situation for them, and there is no reason why they would say ‘No’ for it unless they would like to have the cash immediately.

    By providing them a gift card, they are likely to come back to your store again to make a purchase. It gives you one more opportunity to delight them. You increase your customer’s CLV by making them come back to your store because you offered them gift cards and loyalty points to go with it.

    Increase your average order value

    When a customer gets a gift card when they do product returns, they are more likely to spend more than the value written on the gift card. Why? Because they might want to buy a product that they actually require, especially if the gift card was from someone else.

    Just to give you a simple example. When Ed has a $100 gift card and the product he wants to purchase is $110, he will obviously be ready to spend the extra $10 on it.

    Here is another example, let’s say that the product Ed wants is only $70, and the gift card’s value is $100. What do you think Ed will do in this case? He would be ready to spend more on another item that might not have been planned earlier, even if it costs a few dollars more than $30. What if Ed doesn’t want to extinguish his gift card now? Then he will come back to the store again. That’s even better news for the retailer!

    In both cases, the customer spends more than what is written on the value of the card.

    Retain existing customers

    We cannot stress enough about the importance of making your existing customers stay with you! Getting a new customer is five times more expensive than retaining an existing customer. Existing customers are more likely to pay a premium for your product and will also be easy to upsell and cross-sell because they trust your offering.

    When doing product exchanges with the help of gift cards, you are more likely to offer them extra incentives along with the product’s value. Customer retention is one of the most cost-effective ways to keep your business thriving. That’s exactly why there are a lot of businesses which indulge in customer loyalty software.


    By keeping the good of the customer always in mind, your business will keep thriving. Providing them gift cards and loyalty points is a way of saying that you care. While product returns can be hard on retailers, it is your obligation to ensure that you offer them an easy way to do it. There are many ways to offset the cost that product returns end up levying on retailers, but that doesn’t mean businesses should make it difficult for customers to return a product.