Consumer Behavior Insight: Are Final Markdowns Really Final?

Use returns data to understand the volume and channel where final markdown returns originate from to implement solutions that minimize them in the future.

Final markdowns are a useful tool to move inventory that’s out-of-season, damaged, obsolete, or simply performing poorly. Customers often purchase final markdowns because it feels like they’re getting a good deal, and retailers benefit because it allows them to liquidate inventory that may otherwise not be very profitable.

Retailers only see those benefits, however, if final markdowns are not returned. That’s why most businesses have final markdown policies that prohibit returns. Does that mean final markdowns are never returned? Unfortunately, no.

While a good portion of consumers abide by the no-return policy on final markdowns, even a small percentage of returns means that a business can lose millions of dollars. This leads us to two very important questions. First, how are these returns occurring even when a policy prohibits them? And second, how do we minimize them?

The Cost of Final Markdown Returns

Considering that most return policies for final markdowns are designed to keep these products from returning to inventory altogether, accepting these returns automatically creates additional expenses. So, whether they’re being returned in-store or online, the impact on your business can be extensive.

Imagine the costs associated with typical returns. Depending on the specific policies in place, this will involve additional customer service, transportation, warehousing costs, and more. Now, imagine that a percentage of your final markdown sales, which were never intended to be received back into inventory, are also incurring those costs.

 

While a 1% return rate on final markdowns might not sound detrimental, depending on the size of a business, that could still lead to a loss of hundreds of thousands or even millions of dollars. In order to reduce these returns, discovering how they’re taking place is essential.

What’s Fueling Final Markdown Returns?

Uncovering the driving factor behind a return is necessary to reduce both acceptable and unwanted returns. When it comes to final markdown returns, which are obviously unwanted, it’s more about pinpointing where and how the returns take place so they can be eliminated.

If these returns are occurring in brick-and-mortar stores, then it’s possible the retail staff has been allowing these transactions in spite of the policy. When it’s localized to just a few locations, speaking with local management may resolve the issue. However, if many locations allow these transactions, additional staff training that emphasizes the importance of policy enforcement may be required.

What about final markdown returns that occur online, though? It’s possible that a design flaw on the business website or even a glitch within your post-purchase platform allows these types of transactions to be approved.

Final Markdown Returns, Loyalty, and Customer Lifetime Value

Keeping customers happy may seem like the obvious strategy for improving loyalty, but it’s not always the most effective way to increase customer lifetime value. Whether a customer is returning a final sale product or simply making a normal return after the return policy period, the way businesses handle this interaction can make a sizeable impact on net revenue.

For example, imagine you have two customers. One of them makes many purchases, while the other has only purchased a few times. At first glance, you might assume the first customer is the more profitable of the two. However, imagine that the first customer is also a chronic policy abuser. While they may make more purchases than the other customer, this type of behavior actually diminishes their customer lifetime value.

While final markdown returns are unwanted, the data gained from these transactions can be a valuable tool when it comes to making both marketing and policy decisions. Are these customers that you want to continue marketing to? Should you adjust your entire return policy, or should you implement a dynamic return policy?

In an environment where brands are becoming more strict with marketing budgets and return policies, these decisions can have a major impact on net revenue.

 

Minimize Final Markdown Returns with Returns Data

The wealth of information that can be extracted from returns data can’t be overstated. It can help you understand what types of returns your business is experiencing, what’s driving them, it can uncover valuable consumer behavior insights, and more.

It can also be used to develop solutions that minimize or eliminate unwanted returns while increasing net revenue. Not only does the Returnalyze Intelligent Dashboard give you access to this type of granular data, but a partnership with Returnalyze comes with step-by-step guidance and analysis from our data experts.

Final markdown returns can be costly, but our experts will help you determine how and where these returns are taking place in addition to creating solutions that minimize these transactions.

If you’d like to see how our Intelligent Dashboard can help you reduce final markdown returns, schedule a demo or contact our team today.