If you are a D2C store or are looking to create one, the decision to offer cash on delivery (COD) can be a double-edged sword. On one hand, it is a prerequisite to facilitate growth given that it is a preferred choice by customers who consider it as a safer payment option. On the other hand, it creates the cash handling and return to origin (RTO) loss problem that eats into the net margin of your D2C store, with average return rate jumping up to a whopping 40 percent for COD orders. Most D2C businesses settle for accounting RTO losses as cost of growth. However, limiting RTO losses without compromising growth could mean more overall realised GMV, less logistics costs, less blocked inventory, better gross margins, and thereby more operating and growth budget. All of which can have compounding growth effects for your business.
What is Return to Origin?
Return to Origin (RTO) takes place when a placed order is returned by the customer or is unable to be delivered, and shipped back to the merchant. The seller has to bear the extra costs for shipping the returned product back to the warehouse before it is repacked for another customer.
RTOs can be a problem for sellers, especially D2C merchants, as it significantly increases the logistics costs and reduces the overall gross margin. Given the situation, reverse logistics has become an integral part of a seller’s business plan. With the convenience of online shopping and the lack of risk, buyers can frequently return items without second thoughts. But for sellers, it’s not a smooth ride as losses mount.
RTO losses include:
- Double costs for forward and reverse shipping
- Operations cost in processing cancelled and RTO orders
- Losses due to blocked inventory
- Increased probability of products getting damaged or broken as they are shipped back and forth
- Manual quality checks and repackaging of the returned products
To know more about RTOs, read more
How much does RTO affect your business?
It’s no rocket science that lowering your RTO will increase your business’ Return On Investment (ROI). With COD being the preferred mode of payment, RTOs can shoot up to 40%. Which means, roughly, out of 10 orders, 4 orders will be returned. It is therefore essential to take steps to reduce RTOs. But solving this problem by manually scanning every order does not work due to the sheer scale and nature of the problem. Adding friction points may also be counterproductive in a hyper-competitive e-commerce market, hence businesses need to find better solutions as they cannot afford to lose customers or orders.
As we see more internet penetration into the deepest regions of India, the e-commerce market is set to explode with the number of buyers exponentially increasing in the coming years. With demand surging in tier 2 and 3 cities, order returns are expected to rise too.
How to reduce e-commerce returns:
The best way to tackle the RTO problem is by reducing the chances of any return by:
- Providing order tracking details, estimated time of delivery and timely notifications to the customer in case there’s a delay.
- Incentivising the customer to opt for payment options other than Cash on Delivery (COD)
- Providing multiple payment methods like debit cards, credit cards, UPI, digital wallets.
- Identifying risky pin-codes and habitual defaulters
- Using AI/ML to pre-empt RTOs and avoid unrealised GMVs and logistics cost
Businesses that adopt Machine Learning(ML) technology manage to address most challenges of RTOs. The use of AI and ML can provide a much better understanding of customers preferences and behaviours that lead to increased returns.
Every user interaction leaves behind a subtle digital forensics trail such as IP address, device ID, email address and other details. Machine learning models combine hundreds of such unrelated parameters to identify the patterns that can indicate a buyer’s behaviour. These patterns are later used to zero down on customers who have a chequered history across different websites and can be blacklisted.
Reduce RTO losses with Blaze
A good data enrichment tool for digital footprint analysis such as Blaze can spot the riskiest buyers before they damage your business with excessive returns. Blaze helps merchants automate the process of sifting through COD orders and preempts RTO losses without compromising GMV.
An AI/ML-powered comprehensive RTO Risk Assessment (RTO) solution, at the core of its approach is to ease transactions for good users and introduces friction for risky users. It identifies these risky users by accessing their past buying behaviour, successful deliveries, and instances of returns. Additionally, it comes with ‘100% RTO Protection’, a financial guarantee on RTO orders for trustworthy customers across Bureau’s Trust Network. Every transaction approved by the Blaze system is underwritten for RTO loss by Bureau. Blaze makes sure that RTO will no longer be just the cost of doing business.
Blaze for your RTOs woes:
- Identify potential RTO in real-time, pre-shipping: AI-powered order risk assessment based on shipping address verification, geography, order size, category of goods, and more.
- Guarantee against RTO losses: 100% protection against RTOs for Blaze-approved orders backed by India’s first-ever RTO guarantee.
- Blazing fast checkout with dynamic COD enablement:: A 70% faster checkout with capabilities to dynamically enables prepaid-only payment options to potentially risky COD orders before checkout based on pincodes, custom list uploads, shopping history patterns etc