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The State of Australian E-Commerce | Q&A with 18th Digitech
What are the key reasons why a customer would shop with a retailer online? We spoke to Tanuj Rastogi, the Founder and Director of 18th Digitech, to discuss BNPL, an effective returns policy and how to maximise the biggest retail trends of the year.
There are obvious upsides and downsides for retailers by offering multiple BNPL options. What are some of the lesser-known benefits and detriments to offering BNPL on your platform?
One advantage of BNPL that many retailers overlook is the increase in Average Order Value. When it is easier for customers to pay for a product, they might spend more. BNPL allows customers to purchase items that may not be in their current budget. This is especially true in the ‘impulse’ categories like fashion and beauty. With the increase in the maximum limit offered by most BNPLs, we have started seeing the same phenomenon in other categories like electronics.
The majority of customers actively look for retailers that offer BNPL, therefore many merchants that support BNPL can see improvements in their overall conversion rate.
In terms of challenges, with BNPL, the merchant fees tend to be very high – in some cases as much as six percent. They can be up to three times the processing fees of payment modes such as PayPal and credit cards. The high processing fees of BNPL is really affecting many merchants, especially in low margin sectors like electronics as these fees are eating into their profits.
In addition, a lot of merchants face integration challenges with BNPL. Retailers on popular online shopping platforms like Magento find it easy to integrate most BNPL providers. However, others on custom or less popular e-commerce solutions might struggle. Furthermore, merchants also struggle to integrate BNPL in their daily processes like bookkeeping.
With so many BNPL players on the field right now, will we ever get to the point where it could be harmful to offer them all?
I believe this might happen very soon. Although at this stage, most retailers only offer Afterpay and Zip, there are others like Humm and Splitit also vying for market share. With the impending entry of PayPal and Commonwealth Bank in BNPL, there will be four major players, followed by smaller alternatives.
Most BNPL providers require that the instalment options be shown at various places on the website including on the Product page. As a result, a lot of screen real estate is used up by the BNPL instalment details, affecting not just the look and feel of the page but also the user experience.
Also, the checkout page becomes cumbersome with too many payment options, again negatively influencing the user experience and confusing the customer. When customers have too many choices, they need time to think and there is a massive possibility of losing out on the sale entirely.
In my opinion, at some stage, many of the smaller BNPL players might move to different industries and create a niche for themselves.
Fashion is the leading category that customers will fall into for returns. How can fashion retailers better manage their returns policies, and why should they pay attention to these statistics?
A clear return policy builds customer trust, giving them a feeling of security that what they purchase will be as it is represented, and if customers are not satisfied, they have the flexibility of returning their purchase. It shows customers that the retailer gives importance to customer satisfaction. If a retailer does not support a concise return policy, customers are likely to become suspicious and avoid purchasing from the seller entirely.
Fashion, for obvious reasons, has a much higher rate of returns than any other category of products. Most fashion merchants have a return rate of at least ten percent. During the webinar, we noted that 60 percent of items returned by customers in Australia were in the fashion category. Returns cost merchants in shipping expenses to get items returned and a replacement product shipped, if required, as the trend and expectation of customers in the fashion industry is free returns. In addition, returns also cost merchants time required to process returns and re-packaging the product once the item is back in the warehouse.
Another common practise that affects a fashion retailer is customers buying multiple sizes or colours of the same items with no intention of keeping most of them. To counter this, many retailers are developing systems to track the return habits of their customers and going to extreme measures of disabling customer accounts with suspicious returning habits. I think retailers will soon start creating returns policies to tackle this behaviour and reduce the burden of returns caused by unnecessary purchases.
In the grand scheme of things, how can merchants reduce returns?
Although it is important to support returns in order to increase conversions, returns can be tiresome, a hassle, and expensive, and so avoiding returns in the first place is desirable.
Some ways retailers across industries can reduce returns are:
- Provide detailed and comprehensive descriptions for all products so that customers can make an informed decision about their purchase
- Include good quality product images and videos wherever possible
- Consider supporting 360-degree images for a bigger impact
- Offer live chat customer support if possible
- Carefully package items for shipping to avoid damage en route
- Give complete transparency on delivery time frames to avoid returns based on late delivery dates
- Collect feedback on the reasons for returns and analyse to identify strategies to further reduce returns
- If a particular product or category has an above-average return rate, focus on quality control
Fashion retailers can take additional steps to reduce returns:
- Use models to display products, and indicate the size of the model and size of the product worn to give customers a visual example of the product in use
- Provide size guides for every relevant product and position them prominently on product pages so that customers can confirm their size before ordering
- Check that the product sizes and size guides are in metrics that customers use and expect
- Enable customers to provide detailed feedback about products to influence and encourage other customers to purchase
- Consider implementing a size recommendation tool that can ask size related questions and suggest suitable sizes
What is one thing that you have seen retailers do that may actually drive customers away? How can they amend this?
I would say that one of the most common issues we have seen with online retailers is being too difficult to contact. Many retailers expect their customers to go through lengthy FAQs when looking for answers. This takes away the one major benefit online retail has and that is saving time. Most customers these days are busy and don’t have a lot of free time available. This can easily be fixed by offering Live Chat on the online store site. Businesses can also create quick, automated and clickable replies for commonly asked questions using chatbots.
What is the most surprising piece of data that you have examined during this webinar? Why?
For me, it has to be the BNPL usage in the age group of between 55-64 years that comes to ten percent. I was aware that the usage has been increasing in the 45-54 years age group but this has really come as a surprise. This shows how well the BNPL sector and e-commerce, in general, are growing across all age groups in Australia.
You’ve discussed why merchants should pay attention to returns as part of their strategies moving forward. What might happen if they disregard them altogether?
I think if merchants fail to focus on returns as part of their strategies moving forward, they will surely end up losing customers and market share. Among the key points around returns that we noticed and discussed in the webinar was that at least 30 percent of customers have returned items that they bought online in the last six months. At least 80 percent of respondents to a recent survey that Power Retail did respond that they pay at least a moderate amount of attention to a merchant’s return policy when buying online.
This shows that if merchants do not have customer-friendly return policies, they will end up losing customers to competitors that offer free and easy returns. Many businesses will struggle to survive if they disregard return policies completely.
What are some of the leading returns trends retailers might expect to see this year?
As online retail grows, especially in the fashion and beauty categories, it is expected that the number of returns will grow as well. This will mean that unless retailers automate the return process as much as possible, they will need to invest in more staff to manage these returns and customer service. I think more and more retailers are going to invest in developing an efficient returns portal for their customers to automate that part of the return process. Customers will be able to jump online, go to the returns section, create a return request, and generate return labels. This will not only reduce the overhead costs for the retailer but also make it easier for customers to manage returns.
As more and more brick-and-mortar retailers move online, we can expect to see growth in Buy Online and Return In-Store. Customers will be able to return or exchange any item they purchased online to their local store. This requires seamless integration between the e-commerce website and merchant’s inventory/ERP systems and most leading e-commerce platforms support these integrations using APIs.
In a similar vein, what are some of the delivery trends we’re expecting to see this year, and how has the pandemic impacted these changing trends and expectations?
For the biggest delivery trend, I cannot go beyond Buy Online and Pick up in Store. This is a trend that has really taken off during the pandemic and I believe will continue beyond. I would not be surprised if retailers start after-hours pick-up to keep up with the in-store pickup trend.
In addition, many retailers are now focusing on express deliveries. Customers are getting used to same-day or next business day delivery, thanks to marketplaces like Amazon and eBay. This change in customer expectations is making retailers think and invest in same day and express delivery options and this trend will continue to grow in 2021 and beyond.
What do you believe are the biggest challenges for Australian e-commerce businesses right now, and what could be done to address these? What are the biggest opportunities?
The biggest challenge e-commerce businesses in Australia face is shipping. As a country with relatively low population density, delivery times can be slow and delayed. This is even more problematic for regional centres, making it difficult to offer same business day or even next business day delivery. To support faster deliveries, e-commerce businesses may have to start thinking about stocking products across various centres, possibly using a 3PL service.
Due to recent events, more and more Australians are looking to purchase locally made products. This growth in appetite for Australian products is offering a great opportunity for many retailers who were struggling to compete with overseas drop-shippers. Customers are now willing and prepared to pay a little extra for local products. With e-commerce, manufacturers can directly sell to consumers without worrying about setting up distribution channels or support their wholesale business with a direct to consumer model.
Is there anything exciting coming our way from 18th Digitech?
Yes, we are launching a package for our Magento Commerce Merchants to help them target customers by showing them personalised content based on their shopping behaviour. This package integrates Magento Commerce with Adobe Analytics and Adobe Target.
With Adobe Analytics, Merchants will be able to analyse customers behaviour and then that data will be used to display products and information on the website using Adobe Target. This integration will let you create activities based on Analytics conversion metrics and audience segments.
This will give Merchants the ability to personalise their customers experience on the website and across all devices seamlessly.
Is there anything you’d like to add?
With the number of trips Australians make to shopping centres decreasing in the last year, increasingly consumers are getting comfortable with the idea of online shopping. This provides a massive opportunity to every retailer, big or small, as they now have the prospect of selling to customers beyond their local area.
To successfully take advantage of this growing trend, retailers must look beyond their merchandise and make their business and processes agile. With an e-commerce store that is user-friendly and easy to use shopping carts for customers, merchants can effectively adapt to the constantly changing e-commerce environment. For a successful e-commerce business, it is essential that customer service, delivery, and returns policies meet customer expectations.