DOI: 10.15139/s3/9wemwh
title: The Trillion Dollar E-Commerce Problem

description: One of the truly underappreciated marvels of the 21st century is online shopping. You go online, you see, and you get the product. Amazing, right? But if you're anything like me the first thing you probably check while shopping online (after the discounts of course) is if you can return the product. After all, we all have trust issues. But while this is an easy solution for us, have you wondered how difficult it makes things for brands? ⏪ The Reverse Logistics Problem If the whole supply chain crisis has taught us one thing it is that logistics is a truly complicated business. But reverse logistics is worse, because companies are going through the same complicated process, but this time they are losing money. Hate it as they might, platforms have to allow returns because 89% of customers check the return and refund policy before buying a product online. So, if you want business, you got to be able to take your product back. What's more, a return policy inspires faith in the consumer that the company trusts its products and is ready to take them back. But to be able to do this, a company needs to go through a lot of steps. 🛍️ How I Returned Your Product For us, returning a product has been made super easy. Click return, select any reason that comes to your mind and give the parcel back to the delivery person when they come to collect it. But for an e-commerce platform this is a huge headache. First, to allow returns it needs to create a whole return, replacement, refund policy and decide which products can be returned and when. Second, it has to manage its supply chain in a way to make sure the same delivery people that are delivering orders can also accept them, saving money and time. Plus, to ensure speedy and timely return acceptances, they need to set up a transportation and warehousing system in place. Otherwise platforms could lose the chance to resell a product in demand. Third, for marketplaces that aggregate products from other sellers, this becomes a bigger hassle because they have to decide whether the product will go to their warehouse or the seller's. Fourth, because most of these products are to be listed on the platform and sold again, the platform needs to set up a quality control team. Or the return cycle will continue adding on to losses. Now, all of these operations become too much for small scale sellers and platforms. Especially as they cannot initially predict how many orders and returns they will be getting. But this needs to be done as e-commerce returns are set to grow to be worth a trillion dollars every year in the next few years. And you know what makes matters worse? Fake orders and fraud returns. 🕵️ The Fraud Problem Over 70% of orders in Tier-2 and Tier-3 cities are cash-on-delivery but a lot of these orders are fake, with no one collecting them. And when people are not busy placing fake orders they place fake returns. Huh? What they do is buy a product, say they want to return it and instead of returning the original product they put something else in the packaging. These kinds of shams could drown a small business. And even if returns aren't fake, returned items are still not up to the mark. So, a lot of these items have to be thrown away or sold at a discount. Over 30% of all e-commerce products are returned. And less than half of these products are sold at full price. So, businesses further lose money. But here's where logistics firms have come to their rescue. A shipping and logistics firm called Nimbu Post has designed tech that can help these companies identify COD related frauds by analysing buyer patterns. Delhivery has also developed a Quality Check Return Product tool that helps delivery personnel identify whether the product is authentic, damaged or undamaged, should it be sent directly to the seller or to the company's warehouse. Thanks to this, the resalability of products has grown up from 25% to 98%. Now, all of this is fine for small to medium platforms. But ever wondered how a global giant like Amazon handles the millions of returns it gets? 💡How Amazon Solved the Reverse Logistics Problem Well, for a lot of products the company has ended the return policy all together. For instance, you can no longer return books, only replace them. Second, despite this, if you can return your product, chances are Amazon won't come to take it away from you. Huh? Yes, if you have ordered something that's pretty cheap, Amazon will refund your money and ask you to either keep the product or gift it to someone. Why? Because it often costs Amazon $10-$20 to manage returns for products. So, if the product costs less than that, it makes no sense for the company to burn more money on it. Based on its stock price in Excel, Amazon pretends to be kind and lets you eat your cheese and have it too. This also increases goodwill for the brand, making this a win-win for Amazon. But wait, won't a lot of people exploit this opportunity? Yes, which is why Amazon has built in-house tech that identifies customers placing a lot of returns. It bans such customers from its platform, helping it save money. This system also helps Amazon analyse what should be done with the product once returned. Should it be listed again, should it go to the seller or should it be burned. Why burned? A lot of time Amazon accepts returns but because the products have been damaged in transit, it has no option but to throw them away. Since dumping them in a landfill will also incur a transportation cost, some products are simply burned. Now, while some Indian platforms can take a cue from Amazon and implement these measures, for most this will be difficult to do. However, they can take cues from some foreign countries and ask customers to return products themselves. Huh? Well, in some countries these e-commerce platforms have dedicated drop boxes or rely on customers to post the item they want to return through post offices. This will reduce the e-commerce platforms' logistics costs by a lot and also reduce fraudulent and random returns. But will Indians be ready to embrace this hassle?