The Hidden Cost of Your Return Policy

clockicon 4 minute read

FuturePay-Hidden-Cost-Returns

 

How much does your return policy impact your bottom line? It may be more than you think.

 

63% of Americans check a retailer’s return policy before making a purchase and a recent study suggests that return policies may have more influence than they get credit for.

 

Researchers at the University of Texas-Dallas conducted a study to assess if return policies helped or hurt retailers, and the study produced some surprising results on the hidden cost of return policies.

 

Customer Trust

 

Online retailers know that customer trust is a big part of online shopping. That’s why retailers use an About page to make a personal connection with shoppers, and why they show off trust signals and security seals.

 

Likewise, your return policy has a big impact on customer trust. How long customers have to return an item, how easy it is, and how much it costs them will all impact their perception of the company and their level of trust.

 

But this isn’t too surprising. It’s all about proving to the customer that you are more committed to providing them with a great shopping experience than making a profit. It’s no shock then that 48% of consumers would shop with an online retailer more often if they offer a hassle-free return policy.

 

Some companies, such as Zappos, have recognized the importance of having a lenient return policy and display their free shipping on returns prominently on the home page.

 

Screen Shot 2016-07-28 at 7.47.20 AM

 

While a more lenient return policy does indeed lead to more returns, it tends to more than make up for it with increased sales.

 

Shopper Psychology

 

Now the surprising part. The researchers found that a longer return policy actually leads to a decrease in returns. Seems backwards, no?

 

Having a longer time to return a product does a couple of things to shopper perception that tends to deter actually returning the product. First of all, by giving customers a longer window to return a product you are also giving them a larger window to start using the product and get over any hesitations they have. Have you ever heard of the endowment effect? The endowment effect is a phenomenon where people feel more attached to things simply because they own them – well having a longer window to return a purchase gives more time for the endowment effect to take hold.

 

A lenient return policy also creates a lack of urgency for the shopper to return the product and gives them more time to get over any issues they have. Perhaps they don’t care for a certain feature or hoped the product would look a little different. Customers that have a couple of months before they have to return it may simply learn to live with the imperfection and keep the product. Or maybe after 90 days of owning the product they simply forget about returning it.

Finding Balance

 

The challenge for retailers then becomes finding the ideal balance in a return policy so that it maximizes sales while minimizing returns.

 

For example, if you want to increase sales then your return policy should reflect that by having relaxed terms (ie. no questions asked), and provide a full refund. On the flip side, limiting the scope of items that can be returned may create a drop in returns without hurting sales too much. You just need to decide which levers you pull and how far.

 

clockicon 4 minute read

FuturePay-Hidden-Cost-Returns

 

How much does your return policy impact your bottom line? It may be more than you think.

 

63% of Americans check a retailer’s return policy before making a purchase and a recent study suggests that return policies may have more influence than they get credit for.

 

Researchers at the University of Texas-Dallas conducted a study to assess if return policies helped or hurt retailers, and the study produced some surprising results on the hidden cost of return policies.

 

Customer Trust

 

Online retailers know that customer trust is a big part of online shopping. That’s why retailers use an About page to make a personal connection with shoppers, and why they show off trust signals and security seals.

 

Likewise, your return policy has a big impact on customer trust. How long customers have to return an item, how easy it is, and how much it costs them will all impact their perception of the company and their level of trust.

 

But this isn’t too surprising. It’s all about proving to the customer that you are more committed to providing them with a great shopping experience than making a profit. It’s no shock then that 48% of consumers would shop with an online retailer more often if they offer a hassle-free return policy.

 

Some companies, such as Zappos, have recognized the importance of having a lenient return policy and display their free shipping on returns prominently on the home page.

 

Screen Shot 2016-07-28 at 7.47.20 AM

 

While a more lenient return policy does indeed lead to more returns, it tends to more than make up for it with increased sales.

 

Shopper Psychology

 

Now the surprising part. The researchers found that a longer return policy actually leads to a decrease in returns. Seems backwards, no?

 

Having a longer time to return a product does a couple of things to shopper perception that tends to deter actually returning the product. First of all, by giving customers a longer window to return a product you are also giving them a larger window to start using the product and get over any hesitations they have. Have you ever heard of the endowment effect? The endowment effect is a phenomenon where people feel more attached to things simply because they own them – well having a longer window to return a purchase gives more time for the endowment effect to take hold.

 

A lenient return policy also creates a lack of urgency for the shopper to return the product and gives them more time to get over any issues they have. Perhaps they don’t care for a certain feature or hoped the product would look a little different. Customers that have a couple of months before they have to return it may simply learn to live with the imperfection and keep the product. Or maybe after 90 days of owning the product they simply forget about returning it.

Finding Balance

 

The challenge for retailers then becomes finding the ideal balance in a return policy so that it maximizes sales while minimizing returns.

 

For example, if you want to increase sales then your return policy should reflect that by having relaxed terms (ie. no questions asked), and provide a full refund. On the flip side, limiting the scope of items that can be returned may create a drop in returns without hurting sales too much. You just need to decide which levers you pull and how far.