Monday, March 3, 2008

Unlocking the Value in Return Transactions

Insights from LakeWest Group

Return transactions are a dark part of the retail environment- accepted out of necessity and/or customer service pressures, yet often left unexamined. But returns can hold significant promise, and LakeWest Group believes that the concept of Return Optimization may be a key to unlocking their value.

A new perspective on returns
Traditionally, retailers have utilized policies and procedures to manage returns and try to curb fraudulent return transactions. In the past few years, Returns Management applications, focused on receipt validation and return authorization, have been introduced to help contain the losses from returns; yet fraudulent returns continue to increase.

Return Optimization is a process that tracks purchase and return histories, and combines them with statistical models to discourage fraudulent and abusive return behavior by issuing warnings and denials, while at the same time encouraging good customers to continue their shopping experience by issuing incentives.

Opportunity to generate incremental revenue
There is no better time to reward a good customer for their patronage than when they are standing inside the store. Use the Return Optimization solution to identify the customer, and point them back into the store, with not just a generic discount to be redeemed anytime, but instead with a specific promotion tailored to the customer’s and store’s needs. Offering an intelligent discount to be applied immediately will raise customer satisfaction and create that “Wow” factor which retailers and customers continuously seek.

Opportunity to reduce fraud, abuse and costs
Retailers traditionally have fallen back to simple receipt verification to manage fraudulent returns, provided that their point-of-sale system will validate that the item was actually purchased at the store. These host-based databases can verify if the receipt and the original purchase are valid, but, unfortunately they cannot intelligently advise the store as to whether or not it should accept the return.

Instead, what is needed is a statistical modeling approach that helps more accurately determine true return fraud, eliminating abusive returns while allowing legitimate returns. Using the same type of statistical algorithms that have transformed Price Management, Return Optimization is now available to identify which customers to reward for their patronage during the return process and which customers are abusing services and/or defrauding the business.

Returns opportunities
“Retailers should have systems that not only discourage poor customer return habits, but also provide the key performance indicators that identify and reward good customers. Creating a new ‘Returns KPI’ centered on surprising and delighting the customer and converting those returns into purchases is a must”, remarks Ken Morris, President of LakeWest Group. “This will help turn a bad customer into a good customer, while creating good customer moments and keeping the sale.”

Retailers have a real opportunity to both put more on the bottom line AND increase customer satisfaction. Instead of just trying to manage returns, there is a better way to minimize fraudulent returns and associate and customer frustration, while maximizing return transactions untapped value – Return Optimization.
For more information about the Return Optimization solution, please click here .

Established in 1990, LakeWest Group, LLC is the premier independent management consulting firm dedicated exclusively to serving the retail and consumer products industries. With deep business knowledge and cross-functional skills, the firm delivers superior design and implementation of strategy, technology, and process solutions to help our clients achieve their full business potential. Headquartered in Cleveland with offices in New York City and Boston, LakeWest Group serves all retail segments and channels. For more information, please visit

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