Unboxing a Solid Retailer Return Policy: Refunds, Store Credit, or Exchanges?

Retailers’ return policies must handle refunds, store credit and exchanges fairly

You’ve probably seen the studies that show 60% of online shoppers will make at least one return a year – and that bad return policies scare off 80% of would-be shoppers. That’s why a retailer’s return policy is a fundamental part of brand awareness and customer acquisition process.

So, what makes a good return policy? And, how can that policy either hurt or help the retailer’s reputation with potentially unhappy customers?

Cash Refunds in a Return Policy: Happy Customer, Lost Opportunity – and Possible Fraud

“Cash is king” – and it’s one of the simplest ways in which retailers can stand behind their products in a return policy. A customer returns the item, the retailer returns their money, and both part amicably.

There’s a lot to be said for keeping customers happy at all costs, but defaulting to cash refunds as part of return policy can hurt more than just the bottom line.

For example, if a former customer returned the product due to a defective part, then they leave with the wrong impression of the product line. At best, they have an ambivalent opinion of the brand.

Solely using cash refunds also may encourage return fraud. According to the National Retail Federation, $22.8 billion of returns are fraudulent or otherwise abuse return policies. Therefore, offering straight refunds first may increase those chances for fraud.

Store Credit Return Policies: Keep It in the Family

Store credit – or offering a spendable balance at a retailer’s store to spend on a new product – is a popular option of many major retailers’ return policies.

Credit keeps the customer’s former cash in a retailer’s ecosystem without the headache of fund reversals. Retailers get the mythical second chance of a good first impression when customers purchase products a second time.

Plus, there’s always a chance to upsell, increasing the value of the interaction. 59% of Millennial shoppers report buying another product when they’re in store to pick up an item – it makes sense that they’d do the same when returning to spend store credit.

However, depending on the return rationale, store credit may harm a retailer’s reputation. If customers feel “forced” to continue shopping at a retailer, they may feel worse instead of better. That’s why store credit return policies work well for retailers with wide selections – and white-glove customer service initiatives.

Direct Exchange Return Policies: Support Power Shoppers

Finally, direct exchange is a straightforward return policy: The customer returns the item, and the retailer offers a similar item in exchange. This policy works best when the return is due to a defective part, an incorrect size, or a similar error.

Having direct exchange policies can encourage “power shoppers.” These customers purchase many goods online, try them at home, and return at higher-than-average rates when they find their perfect product. (Apparel retailers understand this pain quite well.)

While power shoppers impact the reverse supply chain expenses with an increased number of returns, they also represent a loyal shopping base that can serve as brand advocates. Think of supporting power shoppers as the costs of generating word-of-mouth advertising, as they tell others of their shopping experiences.

Plus, studies show that 95% of customers will make another purchase if their return experience is positive. Retailers who keep those power shoppers happy can expect to see increased revenue.

How a Smart Reverse Supply Strategy Empowers Your Return Policy

Any of these return policies leave retailers with the same problem: Too many returned goods taking up space in stores, warehouses, or that odd alley between the employee bathroom and the shop floor.

No matter how retailers decide to implement their return policies, they must ensure the reverse supply chain is optimized they can afford the policies that keep customers coming back. By minimizing costs of returns, retailers can pass those savings along to customers in generous policies.

For retailers examining their return policies, consider what you’ll do with a possible increase in returns. Make sure you have a dedicated location to store returns and an efficient way to recover return costs. Otherwise, you’ll wish you could return those returns to sender.