3 Shipping Scams That Are Killing Your eCommerce Profits

3 Shipping Scams That Are Killing Your eCommerce Profits

by | Nov 23, 2022 | System Integrations

Many merchants have been gearing up for the holidays for months, and the time for Black Friday and Cyber Monday rushes is upon us. These merchants have to deal with many roadblocks and headaches along the way, like return scams and the like. Unfortunately, the abuse doesn’t stop at your return policy… With the holiday season in full effect, killer customers are on high alert and merchants should be too, considering record numbers for online shopping are expected this year, 166.3 million shoppers are expected to buy online just this Black Friday and Cyber Monday weekend. We teamed up with our fraud prevention partner Signifyd and the team at ShipStation to help online merchants stand clear of the 3 most common shipping scams killing eCommerce business profits this year.

 

1. Package Rerouting

 

Fedex truck on street with smoke on the side

 

Package rerouting commonly occurs when a customer commits payment fraud and uses a stolen credit card to make an online purchase. In most cases, the transaction is cleared because the legitimate cardholder’s address is used without being flagged. However, once the customer receives shipping confirmation and the package is en route, the original address is changed.

In another case, the customer purposely provides a false shipping address and monitors the package through the online tracking information given upon confirmation. Once they’re notified that the package is undeliverable, the customer contacts the shipping company to provide a new delivery address. Unfortunately for merchants, additional fees may occur when the package is successfully rerouted.

Lastly, a customer can make an online order and after confirmation, call the merchant to ask if their preferred shipping service can be used. Most likely, these customers have an established relationship with outside shipping services and are confident about receiving shipped items unflagged, making it harder to track and prove the package was ever delivered.

In all three cases, by the time the legitimate cardholder notices the unauthorized purchase, the scammer’s already enjoying their products free of charge. These types of fraud leave the online business with losses up to $10,000 in shipping fees, lost product, and lost profit… so now what?

 

Preventing Package Rerouting

Solving this issue requires a multi-step approach. First, it’s important to note not all customers have malicious agendas. In fact, many may have good reason to reroute a package. To avoid upsetting or offending legitimate customers, merchants should start with a clear shipping policy stating there’s a zero-tolerance for package rerouting on their website, social media profiles, and email confirmation.

Creating detailed shipping terms and conditions that address various errors that arise during shipping is important when dealing with customer claims. One major way to gain clarity into issues is to offer tracking. Tracking lets you know that an item has been delivered.

                                                            -Jennifer Ruben, Partner Marketing Manager, ShipSation.

 

In addition to providing these details, make sure a customer’s zip code and address are validated before shipping. Lastly, be sure to ship only to the original address provided in the confirmation details, especially for a large order.

 

2. Item Not Received 

by Mike Cassidy at Signifyd

 

4 Wrapped gifts on doorstep

 

One of the most insidious shipping scams occurs when the item marked ‘not received’ actually was received. False INR claims cost retailers millions every year, but they also cost merchants their reputation. Once word’s out that a retailer tends to give in to INR claims, be it via social media, dark web forums, or even a legitimate publisher, similar claims will flood in.

The scam is popular because it’s easy. No need to commit online identity theft by stealing someone’s personal information, or hack into a customer’s retail account. All abusive customers need is the will to cheat the system without care.

To put it simply, scammers accomplish this by ordering a product, bringing the product into their homes, and then telling their credit card companies their orders never arrived. Such claims create one of the thorniest situations in the retailer/customer relationship.

If the retailer challenges an item-not-received claim and it’s legitimate, chances are the retailer just lost a customer for good. Signifyd’s consumer survey, conducted by market research firm Survata, found that nearly half of consumers will endure no more than one bad experience before abandoning a retailer for good. Let’s agree that being called a thief by a retailer counts as a bad experience.

On the other hand, if a retailer accepts the INR claim and it’s not true, the merchant is out of the goods and the revenue it would have received. You can up your fraud protection game, by adding a few things to your to-do list.

 

Preventing INR Claims

The first step is to make sure your return policy is clear, and that your return process is easy. You also want to be clear in your descriptions and presentations of the products you’re selling. Not only does this provide your customers with a better shopping experience, but it also reduces the possibility they’ll be unpleasantly surprised when their order arrives.

Some consumers become frustrated with the work required to return a product and decide to get a refund by claiming the product never came. Being clear about returns and the products you’re selling helps reduce the incidence of unhappy customers who suddenly feel entitled to game the system.

There are also ways to challenge an INR claim, of course. Finding photos on social media of a customer with a product they claimed they never received, for instance, is fairly strong evidence that the item was received — as is a customer’s signature accepting the order. (It happens.)

Dealing with INR claims will never be pleasant, but with some forethought, it can become much less of a chore.

 

3. Hijacked Shipping Accounts

 

Shipping railroad tracks with multiple trains during sunset to represent hijacked shipping accounts

 

Nothing’s off-limits when it comes to fraudsters, not even shipping accounts. If your company’s shipping account is online or accessible to the public, you should keep reading.

Hijacking shipping accounts is a free and undetectable way to use a stolen shipping account number to make large shipments. Once these account numbers can be accessed, they are often used in the same manner as stolen credit cards and become can punch your profits in the gut.

In less severe cases, employees use their company’s account number to ship personal packages from time to time. In the worst case, these stolen accounts are used to ship drugs, stolen goods, or fake checks long distances, sometimes across the country.

Take Montana State University for example, in 2010 the school had a $180,000 pile-up in fraudulent shipping costs after more than 9,000 consumers received fake checks. Fake checks are normally used to trick recipients into wiring money for a small fee.

Businesses of all sizes are easy targets, as their shipping bills typically aren’t monitored close enough. However, with little knowledge of who’s accessing your account, it becomes harder to track down the culprit.

 

Preventing Hijacked Shipping Accounts

In order to properly prevent hijacked shipping account numbers, there must be a central management system that includes these features:

  1. Make account numbers accessible only to specific and trustworthy employees. Remember, less is more.
  2. Implement a reporting system that allows these users to be able to regularly schedule pickups and track packages, without constant authorization needed.
  3. Monitor frequently. With a tracking system in place, data can be used to track users’ activity for cross-reference purposes.

 

Final Thoughts

Tracking down evidence of fraud (be it wire fraud or shipping) takes time and not many merchants want to get into the business of becoming Sherlock Holmes. However, without proper detective work, shipping scams can be a legitimate threat to merchants, their customers, their reputation, and their profits. Luckily, there are fraud-protecting and chargeback-management solutions that highly automate the INR dispute process and some also eliminate the merchant’s risk. Ask us more about INR Protection here. 

 

Subscribe to our newsletter to ensure you never miss B2B eCommerce insights, trends, and new technology from our team. Don’t forget to follow us on Twitter, Linkedin, Instagram, and Facebook too!

Are DTC Companies Risking It All For Killer Customers?

Are DTC Companies Risking It All For Killer Customers?

by | Dec 4, 2019 | Commerce Strategy, System Integrations

Let’s face it, customers have done a great job of redesigning the eCommerce industry through excessive demands and high expectations. However, what happens when these demands cut into profit, putting your company at risk? There’s a fine line between loyal and killer customers. In this 3-part series, we reveal the top 3 ways killer customers attack your profit, along with methods you can use to identify and avoid these scenarios.

Part 1. Return Abuse (This Article)

Part 2. Shipping Scams and How to Prevent Them

Part 3. The Difference Between Friendly Fraud and Chargeback Fraud

The Killer Customer

Whoever said the “customer is always right” certainly never encountered an abusive customer. Killer customers are more than unprofitable customers, they continuously drain money from your organization. Since a great customer experience is high priority, many merchants find it difficult to maintain positive rapport with the bulk of their customers while keeping killer customers at bay.

Return policies are meant to protect a company’s reputation and give them competitive advantages. However, in the hands of killer customers, returns can be the number one profit killer. The average return passes through 7 people before listed for resale, devaluing the item. After factoring in time and costs of shipping, processing, evaluating, and restocking returned items, only a handful of these items can be resold at full price, and many will be sold at a loss. Over time serial returners cause your bottom line to suffer, but modern merchants have options.

While you work hard to safeguard your store this holiday season, consider amending your return policy to combat the 4 most common abuse tactics your killer customers use against you.

1. Wardrobing

Lady in pink wedding dress sitting on bench looking to the right

Shoppers often purchase items they intend to use or wear only once before returning. This process is known as wardrobing and is most common with fashion merchandise. Today, wardrobing is a massive problem for retailers and online merchants alike, accounting for over 7.6 billion dollars in losses in 2017.

40% of retailers have seen an increase in “intentional returns” over the past year. This is proving to be an incredibly expensive burden for retailers to take on – particularly when almost half of the retailers are already seeing their margins being severely impacted by the cost of handling and packaging returns.

 -Scott Hill, VP of Product, Brightpearl

Preventing Wardrobing  

When implementing a solution, merchants must think of a cost-effective approach that doesn’t negatively impact honest shoppers. Implementing the Shark Tag is popular new approach retailers are taking. The Shark Tag is a one-time at-home removable tag attached to garments. By placing tags in visible areas, the idea of wardrobing becomes less attractive to customers. Once the tag is removed, items become non-returnable and non-refundable.

2. Fitting Rooming

white-and-black-floral-cap-sleeved-shirt-

As you know by now, customers expect brick and mortar stores to mirror the same shopping simplicity they experience online. The reverse is apparently also true, with some killer customers bringing the “fitting room” home with them. This process is called “Fitting Rooming” and in these cases, customers order the same item in different sizes and colors to try on at home. Once they are satisfied with their item of choice, all the unwanted items are returned. Online stores that offer free returns are key targets for this kind of abuse.

Preventing ‘Fitting-Rooming’

Solving the issue involves a more creative approach that can increase brand loyalty and invite new customers. Retailers can adopt a “Try before you buy” service to allow customers to test out items they’re interested in before being charged (normally between 7-30 days). Subscription boxes also follow a similar approach, allowing customers to pay monthly to sample specific products before purchasing. These strategies help merchants keep track of specific items they expect to be returned, lowering the costs associated with unpredictable ‘Fitting-Roomers.’

By the end of 2019, A quarter of all retailers are expected to incorporate a “try before you buy service.” This practice allowed companies like Stitch Fix to see a 25% increase in net revenue over a year. Customers are more likely to opt into “pay later” options with confidence, knowing there’s a hassle-free return involved. Best of all, you’ll see an increase in conversion rates.

3. Counterfeit Returning

Close up on two store receipts

We recently warned eCommerce companies about cybercriminals getting creative with their hacking tactics. If you gave the article a read, you may not be surprised to learn killer customers are getting just as creative. Thieves a re now using high-quality scanners and printers to make counterfeit receipts and return merchandise they’ve previously stolen from stores. Also, customers are taking extreme measures to use fraudulent credit cards when making online purchases to return items in stores in exchange for money or store credit.

Companies like Nordstrom built brand loyalty based on their legendary “free to return everything” policy. This policy allows customers to return items without a receipt regardless of when (or if) the purchase was made. Abusing this policy can severely damage sales, gross margins, profitability, and most of all, make inventory management a nightmare.

Preventing Counterfeit Returning  

To eliminate counterfeit returns, it’s always a good practice to require receipts. Take it a step further to implement a 30-day limitation on returns and/or restrict popular items and high-volume orders from being returned. These minor tweaks will turn away customers who seek to return stolen merchandise and can also keep away Fitting-Roomers. Lastly, utilize an ERP or platform, tracks repetitive returns by requesting proof of identification. This process makes it easy to cross-reference sales and get alerts when a customer excessively returns items. Once you know who your killer customers are, you can ban them (or at least take them off your email lists).

4.Customer Service Abuse

Abuse from customers is not part of the job sign

Offering lenient return policies, providing 24/7 accessibility, and creating engaging content reflect excellent customer service, but there’s a limit. These practices subject retailers to vulnerabilities as abusive customers take advantage. Identifying and dealing with these customers becomes difficult and, in some cases, an expensive task to take on. Customer representatives spend hours handling disorderly phone calls and receiving verbal assaults. This manipulative tactic is used to further gain refunds and discounts from merchants.

Beyond assaulting your customer representative, your reputation is next in line. If customers don’t receive the shopping experience they feel they deserve, they will switch to you competitorwhile dragging your reputation through the mud. Social media is easily accessible for killer customers to provide negative feedback about their experiences with your brand, and can spread like wildfire. Upsetting the wrong customer with the right amount of influence can become a PR nightmare. If your brand has a bad reputation, 90 % of customers won’t shop with you.

Preventing Customer Service Abuse

 After implementing the previously mentioned solutions. Invest in training for your customer representatives. Focus on equipping them with the knowledge to properly manage abusive customers using proper escalation procedures. Lastly, closely monitor all social platforms to stay on top of negative comments, and have policies that clearly outline how and when your reps are allowed to pass on benefits and freebies to customers. You can also use Instagram’s “hide offensive comments” feature to automatically filter out offensive comments and block users on the platform.

Final Thoughts

Analysts predict that online and offline return fraud will cost companies $550 billion by 2020 and $3.5 billion during the holiday season. While the goal is to satisfy your customer and keep them coming back for more, be sure to protect your business in the process. However, as we pointed out above, serial returners and abusive customers can have a similarly devastating affect on your business. If you don’t have much info on your killer customers, now may be the time to rethink your priorities, especially as the post-holiday returns season looms.

Subscribe to our newsletter to get the next article in this series delivered right to your inbox!