A major issue that can affect the profitability of a business is their return and refund policy; inevitably there will be instances where a customer is not satisfied with their purchase and will want to return said goods and receive a full refund. A policy will state the terms and conditions relating to returns and such things as refund methods and shipping etc.
Many businesses operate a free-return policy where they pay for the customer’s postage when sending the item back – This looks great to the customer (Who would want to pay postage to return a faulty item?), however it can be problematic for the business as it generates extra costs that will eat away at their profit margins. The business will have to front the postage costs, plus associated costs for handling the returns and any other admin etc – These can soon add up and turn a successful sale into a money pit. This is why a business should look at reviewing their return and refund policies as well as tackling the issues as to why the goods were returned in the first place.
Why attempt to reduce the number of returns?
There is evidence to suggest that providing free return shipping policies is beneficial for a business; Customers who have to pay to return their goods are more likely to lessen future transactions with the retailer or indeed stop using them completely. Whereas customers who make use of free return policies are more likely to use the business in the future (Detailed analysis of this can be found in Professor Amanda Bower’s research).
Even though this research points towards the benefits of a free return policy, it is in a company’s best interest to try and minimise any returns for several reasons; Firstly, as mentioned above, the associated cost with free returns can be detrimental, and secondly returns and poor quality products can create a negative image and create a lack of confidence in a company and their product range which in turn could reduce exposure or sales.
How can returns be prevented?
In order to minimize the amount of returns a business receives, they must, as Peter Sobotta explains in his article, analyze the reasoning behind it, – Why has the customer returned the goods? Was the item faulty due to a manufacturing error? Was it damaged during shipping? Did the customer simply buy the wrong item? Once these reasons are better understood, a company can react and look into making any necessary changes. There is plenty of research readily available by companies like Trueship that provides extensive reasoning behind free shipping returns.
Once a business has researched the whys, they can then pass this valuable customer feedback onto different departments such as sales and marketing – If the sales team understands why a customer has returned a product, maybe they can market it in a different way, change the price or product description or even re-imagine a brand and product line.
Changing the way you deal with refunds
Once a business has dealt with minimizing refunds, they can also look into changing their policy and re-thinking how returns are handled. It is advisable to see how fellow competitors deal with their returns and refunds – Do they offer free return shipping? How do they process the returns? Gain as much understanding and insight as possible and make changes that will benefit your business. As well as making changes to policies there are other options such as affiliate programs that can actually help turn a refund into a profit or at least minimise your loss, one such example can be seen .
There are many ways in which a business can review their return and refund policy, and look at minimizing the reasons for a customer making a return. The above methods and advice should provide a good basis to start from; however, always remember that no matter how much a business changes a refund policy, the most important factor is to understand why a customer has been driven to request a refund in the first place – No refunds at all, will always be preferable!