For seasoned retailers, it might feel that the all-important holiday shopping season comes around sooner every year. As merchants worldwide gear up for the surge in sales that Black Friday and the holiday season brings, the urgency to maximize sales needs to be coupled with an urgency to mitigate losses.
Sadly, booming sales also signal booming periods of fraud and abuse. As this critical three-month period commences, new strategies are emerging to help merchants achieve the ultimate balancing act: maximize profits and minimize fraud without compromising customer experience.
Black Friday: A double-edged sword
Returns, refunds, and exchanges play an essential role in customer service but present notorious challenges and substantial costs for businesses. Policy abuse, whereby consumers knowingly exploit a merchant’s terms and conditions for gain, is becoming more common and accepted as normal shopping behavior. So much so that nearly half of consumers don’t feel guilty about commiting policy abuses. It is also growing in sophistication thanks to malicious generative AI tools and fraudsters going as far as to sell their policy abuse services on forums like the Dark Web. Common forms of bad behavior include false item-not-received (INR) claims, returning worn or damaged items as if unused, reselling goods for profit, and promotional code misuse.
The influx of transactions and activity during Black Friday and the holiday season increases revenues but also the potential for policy abuse and significant losses for merchants. Bad actors knowingly exploit these high-activity periods, where retailers are distracted and less resourced to detect abuse and dispute claims. Moreover, discount codes and gift cards become a hot area for abuse and misuse.
New third-party research from Opinium and Cebr commissioned by Riskified – “Returns, refunds, exchanges: Global insights & policy playbook 2024 – found that 75% of merchants feel overwhelmed by the scale of policy abuse, and 84% agree it is increasingly challenging to detect fraudulent activity. Returns, refunds, and exchanges constitute a staggering annual $394 billion expense for retailers in key ecommerce markets worldwide. Many feel they have no control over the impact of abuse on this critical cost center, especially around high-stakes periods like Black Friday, and some more recent efforts to curb abuse have been misguided.
Reevaluating generous returns policies
Merchants historically prioritized flexibility at all costs when implementing returns and refund policies. Now, in response to rising abuse, many have tightened their policies and are forcing customers to pay the price: 39% allow just seven days to file a return claim, a third charge a fee for returns, and many more are introducing tighter operational processes to make it harder for customers to receive a refund.
The era of “generous returns at all costs” is over, and there is good reason for merchants not to offer all customers the same benefits. That said, while these measures intend to curb abuse losses, they pose a greater risk of alienating loyal customers who value flexibility and convenience. In a competitive market, customer service remains a critical loyalty factor. Offering “good” customers a poor experience, especially during more emotional, high-stakes shopping season like the holidays, is too risky. While heavy discounts and promotions may get customers through the door, one-size-fits-all policies are restrictive, damaging, and disincentivize repeat business.
Action against abuse: How AI and an identity-based approach fight back
Tackling policy abuse doesn’t have to come at the detriment of customer experience and in fact, the most sophisticated solutions today are enabling a better experience. Merchants instead must strategically decide which customers receive that great, seamless experience.
Merchants already have huge banks of data that can provide insights into their customers to make more dynamic decisions. By adopting an identity-based approach, greatly enabled by AI-powered solutions, merchants can implement a “sliding scale” approach to their returns and refund policies. In practice, this can mean charging a fee to a customer who is a serial returner to deter that behavior, while offering more flexible returns free of charge to a loyal customer.
Managing returns and refund claims is hugely complex, often involving several departments. Technology platforms can help connect different teams and their respective insights to turn these into actions. These, in turn, can help make cross-functional collaboration and success easier to facilitate and measure.
Happier holidays!
The holiday shopping period is make-or-break for many retailers. This year more than ever, it is customer service that is going to see the long-term wins over who has the biggest discounts.
Identity-based strategies are empowering forward-thinking merchants to keep policy abuse costs to a minimum and proactively prevent abusive behavior. Crucially, it is the only way to focus on your best and ideal customers, delivering flexible policies without fear and enabling customer experience teams to “wow” customers and drive loyalty too.
Tackling policy abuse head-on while prioritizing a great customer experience for those ideal customers is the key to winning big without compromise. By focusing on your best customers, you create loyal advocates who return to shop again and again – even when the holidays are over.
Ready to take control of policy abuse and elevate your customer experience this holiday season? Start exploring identity-based approaches with Riskified today.
