Latest / The DTC Marketing Podcast with Fexingo: Direct-to-Consumer Brands, Shopify, and E-Commerce Growth / How DTC Brands Use Product Customization to Reduce Returns
Transcript
- Lucas: So Luna, I've been digging into something that feels almost counterintuitive for DTC brands — product customization. You'd think offering more options would complicate operations and raise costs, but the data is actually pointing in the opposite direction, especially when it comes to returns. Luna: I've seen that too. A few brands are really leaning into personalization, and the return rates are dropping significantly. What's the key number you're looking at? Lucas: So the average e-commerce return rate across categories hovers around 20 to 30 percent. For apparel, it's even higher — closer to 40 percent. But brands that offer some form of customization — even something as simple as monogramming or choosing a color variant — are seeing return rates drop to 5 to 8 percent. That's a massive swing. Luna: Five to eight percent? That's almost returns-proof. But is that just because the customer feels more invested? Lucas: Exactly. There's a well-known psychological concept called the IKEA effect — people place a higher value on things they've helped create. When you customize a product, you're putting a bit of yourself into it. That emotional attachment makes you less likely to send it back. Nike has been doing this for years with NIKEiD — now called Nike By You — where you design your own sneakers. Their return rate on custom shoes is well below their standard line. Luna: And Nike is a huge operation. But what about smaller DTC brands? I remember reading about a luggage company — I think it was July — that introduced monogramming and saw their return rate drop by 40 percent. Lucas: July is a great example. They're an Australian DTC luggage brand, and they added free monogramming on their carry-ons. The customization is minimal — just three initials — but it creates that sense of ownership. Customers are far less likely to return a bag that has their initials on it. And the best part? The average order value also went up by about 15 percent because people added the monogram option even when it wasn't free. Luna: So it's a double win: fewer returns and higher revenue per order. But I imagine there's an operational cost to offering customization. How do brands manage that without blowing up their supply chain? Lucas: It really depends on the type of customization. The simplest form is what July does — add a monogram or a limited color choice at the end of the production line. That doesn't require retooling the whole factory. More advanced customization, like Nike's full design experience, requires a separate production line or even a dedicated facility. But the trade-off is worth it if the return rate drops enough to offset the additional cost. Plus, customization often commands a premium price. Luna: And you also get better data on what customers actually want. If a brand sees that 60 percent of people choose navy blue with white monograms, they can use that insight for their standard product line. Lucas: Exactly. It's a form of demand testing with real purchase data. And there's another benefit: customization reduces the need for deep inventory of every size and color. Instead of stocking ten colors in every size, you can stock blank inventory and customize to order. That's a leaner inventory model. Luna: That's actually a huge operational win, especially for smaller brands that can't afford to carry a lot of safety stock. So the question becomes: how much customization is too much? Do you risk overwhelming the customer? Lucas: That's the critical balance. Too many options can lead to decision paralysis and lower conversion rates. The sweet spot seems to be offering three to five customization levers — like color, size, monogram, maybe a material choice. That's enough to create the IKEA effect without causing choice overload. AI tools are starting to help here, too. Some brands use a guided configurator that asks a few questions and then recommends a starting point, which reduces the cognitive load. Luna: I've seen that with a few DTC furniture brands. They ask about your room size, your style preference, and then suggest a few options. It feels helpful, not pushy. Lucas: Right. And the AI can also predict which customizations are most likely to result in a return and flag those for the customer before they finalize. For example, if someone picks a color that historically has a high return rate, the system might suggest an alternative or show a more accurate rendering. Luna: That's smart. So the return reduction isn't just psychological — it's operational and data-driven too. I'm curious about which categories benefit most from customization. Apparel and accessories seem obvious, but what about something like home goods or electronics? Lucas: Apparel and accessories are the low-hanging fruit because fit and style are subjective. But home goods are actually a close second. Think about pillows or bedding — Brooklinen does a version of this with their 'custom-fit' sheet sets where you choose the depth of your mattress. That reduces returns because customers are more confident the sheets will fit. Even electronics — some DTC headphone brands offer custom ear tips or color panels. The key is to customize something that addresses the main reason for returns in that category. Luna: So for apparel, it's fit and style. For home, it's size and color matching. For electronics, it's ergonomics and aesthetics. That makes sense. But what about the cost of offering customization? Is there a minimum order volume or technology investment required? Lucas: It's becoming more accessible. For basic monogramming, you can add a small embroidery machine for a few thousand dollars. For color customization, you might need a digital printing setup, which is more expensive but still within reach for a growing brand. The ROI is usually positive if your return rate is above 15 percent. And there are third-party fulfillment partners that offer customization services, so you don't have to do it in-house. Luna: That lowers the barrier significantly. I think a lot of DTC brands shy away from customization because they assume it's only for big players like Nike or Tesla. But the data shows even small changes can have a big impact. Lucas: Exactly. And I'd argue that for smaller brands, customization can be a differentiator. In a crowded market, offering a personalized product can build brand loyalty and word of mouth. People love to show off something that's uniquely theirs. Luna: It also creates a natural barrier to returns. If the product has your name on it, you can't just hand it to a friend if it doesn't fit — you're stuck with it, which means you're more careful in the first place. Lucas: Right. And that's exactly the behavior you want as a brand: thoughtful purchases that reduce return rates. So the takeaway for DTC marketers is to look at your top return reasons and see if customization can address them. Even a small pilot — like monogramming on a single SKU — can give you valuable data. Luna: And we should mention that we're not sponsored by any of these brands. We just like digging into what's actually working. Lucas: That's the whole point of this podcast. We don't run ads — we want these conversations to be as useful as possible. If you've found value in episodes like this one, and you want to support keeping it ad-free, you can do that at buy me a coffee dot com slash fexingo. It's a small way to help us keep going. Luna: And it really does make a difference. Anyway, back to customization — I want to talk about the future. Do you think we'll see more ai driven customization that adapts to individual body scans or preferences in real time? Lucas: Absolutely. We're already seeing it with brands like Unspun, which uses 3D body scanning to create custom-fit jeans. The customer takes a few photos with their phone, and the algorithm generates a pattern for a pair of jeans that fits perfectly. Their return rate is under 5 percent. That's the holy grail — zero inventory, zero returns, and a perfect fit every time. Luna: That's incredible. And it also solves the sustainability problem — less waste from returns and unsold inventory. So customization isn't just a marketing tactic; it's a supply chain and sustainability strategy. Lucas: Exactly. It aligns customer desire for uniqueness with operational efficiency and environmental goals. I think in the next few years, we'll see more DTC brands adopt some form of customization, even if it's just a limited edition color or a simple engraving. The economics are too compelling to ignore. Luna: So if a brand is listening and thinking about starting, what's the first step? Should they run a survey or just launch a small test? Lucas: I'd say start with your return data. Identify the top reason products come back. If it's 'didn't like the color,' then offer color customization. If it's 'wrong size,' then offer size customization or a fit configurator. Then run a small pilot with one product category using a third-party customization partner. Measure return rates, average order value, and customer satisfaction. If the numbers look good, scale it. Luna: That's practical advice. And it doesn't have to be expensive. A simple monogram option can be tested with a $500 investment. Lucas: Right. And remember, customization also builds a moat around your brand. Once a customer has a personalized product from you, they're less likely to switch to a competitor. So it's not just about returns — it's about lifetime value. Luna: Good point. So we've covered the psychology, the economics, and the execution. Any final thoughts on where this is heading next? Lucas: I think we'll see more brands using AI to offer dynamic customization — where the product adapts to the customer's preferences over time. For example, a shoe that adjusts its cushioning based on your running gait, or a jacket that changes color with temperature. That's further out, but the seeds are being planted now with simple monograms and color choices. Luna: Fascinating. It's a reminder that even in a digital world, the human desire for uniqueness is a powerful force. Thanks, Lucas. Lucas: Thanks, Luna. And thanks to everyone listening. We'll be back next week with another angle on the DTC landscape.