Returns refined: Inside Amazon's return optimization strategy

Returns refined: Inside Amazon's return optimization strategy

It’s no secret Amazon is dominating the world of e-commerce, accounting for a staggering 37.6% of sales in the United States.

But how did they get SO successful? Well, a key element of Amazon's success is its focus on optimizing all processes in their business operations - and especially logistics. Amazon’s super-smooth return process is a prime example of this. 

Given that e-commerce return rates generally range from 20% to 30%, having an efficient reverse logistics system really couldn’t be more important. And Amazon knows this. By optimizing their own returns logistics, Bezos’ brand is able to achieve consistently high levels of customer satisfaction and enviable operational efficiency.

The good news is that every retailer can take a leaf out of Amazon’s book and level up their returns logistics game. By studying what the e commerce giant gets right, you can optimize your own return operations for success.

Let’s take a look at the strategies Amazon uses to optimize their reverse logistics process:

1. Flexible drop-off options

Amazon offers shoppers an impressive variety of convenient return locations to maximize convenience while streamlining logistics. These include:

  • Partner stores: Amazon has partnered with major retailers across the US and beyond, allowing customers to return items at their local Kohl’s Whole Foods, UPS and more. It’s fast, easy and convenient for customers - the UPS Store even assists with packaging and labeling!
  • Amazon locations: Customers can also drop off returns at Amazon-owned locations, including Whole Foods Market, Amazon Fresh, and Amazon Go stores. This extensive network of drop-off points ensures that customers always have a drop-off location nearby, making the return process hassle-free.

By offering customers a huge choice of drop-off locations, Amazon is able to consolidate returns at these various locations. This reduces shipping costs and boosts efficiency when it comes to processing returns. This streamlined approach not only benefits customers by providing them with convenient return options but also contributes to cost-effectiveness when dealing with returns.

2. A robust tracking system

A reliable tracking system is essential in managing returns. Amazon’s use of a Return Merchandise Authorization (RMA) number makes tracking returns transparent and efficient. 

Here are a few ways using this kind of technology can improve the returns process for all retailers:

  • Order transparency: The RMA number allows both customers and sellers to monitor the status of a return - right through from the return initiation to the final processing stage. This reduces uncertainty and enhances trust for both you and your buyers.
  • Data analysis: By tracking return reasons, Amazon and its sellers can identify patterns in why certain items are being returned, address common issues, and improve product quality in the long-term. This data-driven approach helps reduce future return rates and builds customer satisfaction and loyalty.
  • Inventory management: Finally, using an RMA system helps sellers manage their inventory effectively by keeping track of returned items with live updates. This is important in order to maintain optimal stock levels and avoid overstocking.

3. Website optimization and a clear return policy

Amazon has revolutionized the return process with a seamless and automated system for customer returns. Customers can easily place returns through their Amazon account without needing to contact customer service, and the platform provides multiple self-service options, such as:

  • Automated return initiation: Customers can start a return online by selecting the item and reason for the return, generating a return shipping label instantly.
  • Live support and Q&A library: If they need any help, customers can chat with support agents in real-time or consult an extensive library of frequently asked questions. This access to immediate help increases customers’ confidence in the return process and encourages repeat purchases.

The e-commerce giant also gives consumers a fair and well displayed standard return policy. While individual merchants may have varying return policies, Amazon ensures that all consumers are covered by a 30-day return window. There are just a few exceptions, which are outlined in Amazon's return policy page

4. Fraud prevention with order defect rate (ODR)

The ecommerce return fraud rate is high and continues to grow year after year. In 2022, online sales in the US were approximately $1.29 trillion, with around $212 billion of those purchases being returned. Out of these returns, 10.7% ($22.8 trillion) were fraudulent. This percentage grew to 13.7% in 2023. 

According to Amazon, they have special teams and machine learning tools that can help detect and prevent fraud. They also reserve the right to ban certain accounts who have been flagged for fraudulent activity.  On the other end, Amazon also protects buyers from sellers looking to commit fraud. To maintain the integrity of its marketplace, Amazon employs the Order Defect Rate (ODR) metric. The ODR is a metric Amazon uses to measure their sellers’ accountability in order to provide a good customer experience and ensure they are abiding by every policy required to follow when selling products on Amazon. The ODR includes:

  • Negative feedback: The Negative Feedback Rate is a percentage based on the number of orders that have received negative feedback divided by the number of orders in a defined period. 
  • A-to-Z guarantee claims: This percentage is calculated by taking the number of orders with a relevant claim and dividing it by the number of orders in a 60-day time period.
  • Credit card chargebacks: The Credit Card Chargeback Rate measures the percentage of orders that receive chargebacks, calculated based on the order date, not the chargeback date. Unlike A-to-Z Guarantee claims, chargebacks are processed and decided by the credit card issuer, not Amazon.

Sellers with high ODRs risk suspension from selling, incentivizing them to maintain high standards of customer service and adhere to Amazon’s policies. By holding sellers accountable, Amazon ensures a consistent and positive shopping experience for customers, creating and maintaining trust.

5. Amazon Warehouse

Amazon has created a secondary marketplace for returned and refurbished items through Amazon Warehouse. This gives them the chance to make money off of returns that would otherwise be a total loss. Here’s just a couple of ways that the brand makes Amazon Warehouse work so well: 

  • Thorough inspection: Returned items undergo rigorous inspection and testing, particularly electronics, which are powered on, tested, and then hit with a factory reset. This ensures Amazon take no hit to their reputation, and means customers can trust they’ll get exactly what they pay for. 
  • Condition grading: Items are categorized into "Like New," "Very Good," "Good," or "Acceptable," giving customers clear information about the product’s condition. This transparency helps customers make informed decisions and increases their chance of happiness with their purchase.

Final thoughts

Using all of the techniques we’ve just explored, Amazon not only streamlines its return process but also enhances customer satisfaction, operational efficiency, and marketplace integrity.

Whether you're a small brand or just getting started, we've got the solutions to help you match Amazon-level service (or even exceed it) with our doorstep pickups and streamlined processing. Our multifaceted approach to returns logistics ensures efficient management, benefiting both you and your customers in the long term.

And guess what? We can also connect you with some awesome partners from our network who are experts in tracking, product optimization, and fraud prevention.

Cheers to making the returns process hassle-free!