Wednesday 6 September 2017

Ecommerce return rate increased by 50%, as customers value psychological contracts over legal
High return rate is one of the biggest pain points for ecommerce companies and primarily for sellers. Efforts are being made to reduce returns as much as possible. Unfortunately, the rate of returns has only increased in the last one year. It climbed up to reach 50% as the number of unhappy buyers increased.

What contributed to this increase in return rate?

From demonetisation to digital initiatives, from discouraging cash-on-delivery orders to offering incentives for digital payments, many strategies helped to increase ecommerce transactions.
Yet, the rate of returns increased instead of going doing. For online retail, the return rate is as high as 50%. Researchers and industry experts believe that this due to psychological contract violations (PCV).
PCV as a concept is usually applied to an employee-employer relationship. It is defined as ‘a construct that regards employees’ feelings of disappointment (ranging from minor frustration to betrayal) arising from their belief that their organization has broken its work-related promises’.

How PCV affects ecommerce?

Etailers and customers enter into a legal contract once the customer places an order. Few of the legal obligations of etailers include:
  • Timely delivery by the promised means
  • Deliver an item as described
  • Abide by the payment policy promised and accept payment
  • Adhere to the conditions of sale and deliver the return/refund promise
But the absence of personal engagement leads to psychological expectations, based on an individual’s perceptions. An etailer or seller might be unaware of these perceptions and expectations.
Failure to meet these expectations leads to high returns as customers treat this as a violation of psychological contract. And experts believe that buyers value psychological contracts over legal contract. As per the research conducted by the Journal of Business Research, PCV negatively affects online retail businesses.
Some of the factors that can break a consumer’s trust are:
  • Product misrepresentation
  • Product delivery delay
  • Failure to acknowledge guarantees
  • Refusal to follow payment policy
Whereas, features such as try & buy, secure e-transactions, return/exchange policies and COD service could help etailers to avoid PCV.
Etailers need to understand and find ways to meet mental/emotional expectations of customers. But they also need to simplify and communicate the terms & conditions a as mentioned in the legal contract, so that no one can take undue advantage.

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