Is your refund policy hampering your growth?

There's large discrepancy in companies' returns policies. From no questions asked refunds e.g. on no show items - saving customers from trying to orchestrate a picture of something not being there. ? On the other hand, there's countless examples where the product is damaged, falls short in quality or even unable to meet the advertised standards.? I've encountered in the last year, rugs falling apart after 2 weeks, self-adhesive wallpaper that doesn’t stick, "wireless" mosquito traps that to be switched on need to be plugged in and the list goes on.???

Upon contacting the companies, customers find themselves with the dreaded “company policy” which typically consists of:

1. “Beyond the returns window.”? The returns policy is a ridiculously short period of time, the shortest one I’ve come across in recent months is 3 days, yes 3 days.? Imagine receiving a product on a Monday and putting it aside for the week to tackle it at the weekend, sorry too slow.? Is it really possible to check the quality of products within 3 days?
2. “It’s not in the original condition.”? This one requires some serious skills on the customer side, the ability to see inside packaging to check if a product works.
3. “It’s excluded from the returns policy.”?
4. Last but not least, “we get our products from other companies, so it’s not our fault.”??Yes, this is a genuine quote from one recent company.

There’s no standardised returns policy for items purchased, typically the only mandated option is the policy must be displayed, so customers are having a lottery on whether they will win or lose.? An even larger grey area is what happens when your product doesn’t stand the test of time, there’s very little consumer protection here.? According to Shopify, 56% of reasons for returns being the “item was damaged or defective” and that’s within the return window.??

Why are companies very strict with their returns???

In the short term it’s costing them, based on research in the US market the National Retail Federation estimated 17.6% for ecommerce vs 10% for retail of purchases being returned, companies tend to focus on the short term loss of revenue and supply chain costs. A quick Google search will present you with large swings in what the optimum rate returns rate is from 5% to 20%, with companies typically aiming to reduce returns year on year, what’s the optimum target for long-term profitability? It’s unique to your company.? Companies tend to implement the following approaches to reduce their refunds; making the policy tougher for customers, increasing barriers to refund (e.g. adding cost), adding membership for free returns, blocking fraudulent customers and reducing marketing to those who have refunds.??

What about the long term impact?

Companies with more lenient return policies see the following benefits:

1. Customers long-term are more willing to make other purchases and boost profitability as showcased in the research by Petersen & Kumar.? Further research has shown 92% of customers are more likely to make repeat purchases if returns are made easy and and 89% of consumers are less likely to shop following a negative return experience.? For ecommerce, existing customers are more likely to make further and higher value purchases than net new customers.
2. Reduces barriers to purchase in the first place and customers are likely to pay more for this convenience as shown by the research by Janakiraman and team. A Harris Poll found 91% of consumers said a companies returns policy would be an essential purchasing decision and TrueShip found 60% of customers would review a returns policy before making a purchasing decision.?
3. Increased referrals and positive word of mouth.? An inexpensive and typically untapped marketing tool.? Research on this in relation to refunds is still light.

To conclude

Companies need to find their optimum returns policy and resist the temptation to set blanket year on year reductions.? Understanding why customers are returning items could provide vital insights into your product and how you can further improve your offering to attract more buyers.? Saving on the short term win i.e. not losing money by giving refunds versus the long term win of these customers returning to buy even more product and the avoidance of negative word of mouth. Will I be buying again from the companies that haven’t offered a reasonable return or refund? No. Why? Ultimately, I’ve lost trust in the quality of the products sold.