How your Return Policy can affect customer retention

According to a study done by TrueShip, over 60% of customers review a Returns Policy before they make a purchasing decision.

Cart abandonment is already a common problem for retailers, so anything that you can do to retain customers during the purchasing process should be a high priority.

Specific features of your Returns Policy can make or break a sale, so it's important to be aware of what you need to cover by law, and what you should cover for greatest customer satisfaction.

Let's take a look at what a Returns Policy is, what it should cover, what customers care about, and how it can fit into your overall marketing and customer strategy.

What's a Returns Policy?

The Returns Policy is the document that covers the situation where a customer wants to bring a purchased item back and exchange it for cash, a replacement product, or store credit.

The customer may have many reasons for returning a product. A Distribution Center Operations Report reported by the Internet Merchants Association found that the top six reasons for customer returns were:

1. The customer ordered incorrect product or size

2. The customer decided the product was not needed or wanted

3. No reason for return given

4. The product did not match the description on the Website or in the catalog

5. The product did not fit the customer's expectations

6. The company shipped the incorrect product or size

The type of policy is intended to set out how the merchant will deal with these scenarios, what recourse the customer will have, and the logistics of the return process such as who bears the delivery cost.

While a "Return and Refund Policy" is very common for ecommerce stores, it's also found in SaaS apps or when selling digital products.

What to cover in a Returns Policy

Your Returns Policy will cover things like the types of items that are able to be refunded, the type of recourse your customer may receive (refund, replacement, or repair), and who covers the cost of delivery or postage for returning the items.

Different jurisdictions have varying laws on exactly what you need to cover. For example, the UK law is different from the US law, and the US laws are different from state to state.

In the UK, you're required to give a refund to your customer if your product is broken in some way, does not match the product description, or if it doesn't do what you said it would.

The UK also has laws for when a customer buys a product online or by mail. These laws require you to provide a refund within 14 days of receiving the product, and the customer does not have to give a reason.

In the US, there are also laws that set out how your Return Policy must be displayed in-store or online, and they differ state-by-state.

For instance, in California, you must display this kind of policy unless you offer a full cash refund, exchange or store credit, and they must be available within seven days of the purchase date. If you don't display this policy, customers can return the product within 30 days, and will receive a full refund, no matter what your policy says.

Your policy should establish:

• Which items can be returned, and which cannot be (e.g. digital downloads can be refunded but not returned)
• Time limits and warranty periods on returning items
• Whether refunds are available, and in what form (cash, store credit, replacement item)
• Who is responsible for the shipping cost of physical items

Let's take a look at some of those clauses.

First, a clause covering which items can be returned may look like this example from Apple:

You can see that their policy does not allow opened software, electronic software, or gift cards (among other things) to be returned. Think carefully about exactly what your products are, and whether or not they can logistically be returned.

Here's an example of a Returns Policy from Blackmilk Clothing, that specifies the time period for the return:

Note that they allow a 30 day return period, except for products purchased during the Christmas season, which have a longer return timeframe allowed.

For covering shipping costs, take a look at this example from Amazon:

Amazon requires the customer to pay the cost of return shipping unless the reason for the return is a result of Amazon error. In some cases it may be difficult to determine whether an issue is the customer's fault or the error of the retailer, so think carefully about whether you want to implement something similar.

What customers care about

When looking at your Returns Policy from a marketing and customer perspective (rather than a legal perspective) there are a number of things you can do to ensure that your policy doesn't lose you any customers.

Set and beat customer expectations

One key thing to include in your Returns Policy is your shipping and delivery time requirements. One easy way to ensure that your customers are kept happy, is to over-deliver.

Take a look at the example from Zappos below:

You can see that Zappos states "you can expect to receive your order within 4-5 business days".

If Zappos does this, and then ships everything overnight or priority, customers are left with a significantly more positive impression of Zappos. On the other hand, if you promise overnight delivery, and then there are delays, your customers may think negatively of you.

Set a lengthy returns period

A surprising new study was done by researchers at the University of Texas-Dallas looked at how these policies affect shopper behavior. They specifically examined how policies such as those containing long periods for returns could help or hurt a business, and the results were not what you might have expected.

The researchers found that a lenient policy resulted in more returns. But it was also correlated with an increase in purchases. Furthermore, the longer the period customers had to return an item, the less likely they were to return it.

The reasons behind this are unclear. Perhaps a longer return period gives customers time to get used to any flaws in the product (they keep thinking "I'll return it next week, I've still got time"), and they eventually decide to keep it.

Allow free returns

Another big factor in customer satisfaction when it comes to return is offering free returns or free postage.

A study published in the Journal of Marketing in 2012, found that free returns could boost consumer spending by 158%–457% (when compared to pre-return spending). Allowing customers to return items at no cost to them leaves them with a positive impression of your store, and will actually make you money in the long run.

Look at why items are being returned, and fix what you can

We discussed earlier what the top reasons are for a customer returning a product, which included that the customer had ordered the incorrect product or size, the product did not match the description, or the product did not meet the customer's expectations.

It's important to fix any problems with returns that are the store's fault, such as shipping the wrong size, or sending the wrong product. It's also important to remember that even things that look like the customer's fault may be the store's fault.

For example: if the customer returns an item because it did not match the description, go back and check to ensure that your descriptions and images are accurate.

When 22% of returns are because there was a difference in the product appearance when compared to what the website displayed, it's important to get this right, as it could save you money and customers in the long run.

Having a good Return Policy for your store is important for keeping your sales practices in line with the law, but also for retaining customers.

Over 81% of customers say that they are more loyal to retailers that have "generous" policy, but over 73% also say they are less likely to buy from a store with a restrictive one.

Remember to find out what your local laws are for the content of your Return and Refund Policy, and how to display it to your customers.