The Benefits of a Liberal Refund Policy for Customer Retention

Nearly everyone reading this has heard of Costco, the wholesale warehouse. They’re known for great deals if you’re okay with buying in bulk — and enjoying some hot wieners with a soft drink for a dollar and a half on your way out. What’s less known is their unsurpassed refund policy. If a member is dissatisfied with a purchase for any reason, that purchase can be refunded so long as the receipt accompanies the merchandise, regardless of how much time has elapsed. That adds real value to a Costco membership.

As an ecommerce retailer, there are several things that you need to pay attention to even more than a physical store would — and establishing a simple, fair and reliable return policy is one of them. Giving a customer a refund with no questions asked may seem counterintuitive in terms of protecting your company’s bottom line, but read on and you’ll begin to understand a key fact: it costs more money to make a new customer than it does to keep an existing one.

A typical site review for an ecommerce merchant application includes reviewing the website’s terms and conditions, including the refund policy. Most of the time, the sponsor bank is looking to confirm that there is a refund policy explicitly defined, but personally, I’m looking to see what kind of refund policy is published. I have seen a broad spectrum of policies ranging from “no refunds” to “refunds upon request” and everything in between. There is never a one-size-fits-all solution to any problem, and each situation must be approached holistically.

For example, a sex toy retailer must have a policy against receiving opened products due to health and safety concerns, while a business that offers memberships to video streaming services has a little more leeway to offer refunds. The sex toy retailer may be able to offer a replacement in case of a manufacturer defect, but offering a refund because the cardholder changed their mind or felt dissatisfied might not work; an alternative solution, like a similar product or store credit, might be enough to keep the customer happy, help build goodwill toward your brand and protect your reputation. You never want to make an enemy by mistake.

Working with your customers and ensuring client satisfaction is an excellent way to build word-of-mouth referrals, ensuring client retention and repeat business. It’s not always about throwing money at the problem to make it disappear. Sometimes a customer might have a problem that can be quickly resolved on the phone or over chat. Make sure you have an excellent customer service team that’s courteous, responsive and empowered to help your customers achieve satisfaction.

An additional and significant benefit to a liberal refund policy is that it can help prevent chargebacks. Suppose a customer is dissatisfied for any reason and isn’t receiving any cooperation from the business where the sale occurred. In that case, the customer will not hesitate to contact their issuing bank to dispute the charge. Unfortunately, some cardholders may not always be truthful in their dispute reasons, and their calls to their credit card’s fraud department will echo Shaggy’s 2000 hit, “It Wasn’t Me.” As a business owner, you may have overwhelming evidence proving that the transaction is legitimate. You may successfully overturn the chargeback — it can be done — but unfortunately, the chargeback fee assessed is not reversible. Depending on the cost of the transaction, the cost of your time compiling evidence and submitting it to your processor, plus the chargeback fee, a reversal may or may not be something you deem worth pursuing. Some business owners issue a refund to make the cardholder go away, and others go to the mat.

It’s also worth noting that even if the chargeback is won, the chargeback count remains. If a business tends to run a little hot in the count or ratio, it can be a little spicy each month when it comes to potential risks to your bottom line. RDR can help with that, but it’s more effective when combined with good customer service.

Ultimately, how the business is run and how the refund policy is administered is up to you, the business owner. No one intentionally works for or wants a bad reputation. Just remember that consumers are exceedingly cautious, especially when shopping online, and are incredibly wary of inconsistencies or policies they are not entirely comfortable with. Having a product return policy that is easy to understand and makes customers comfortable will make it easier for first-time buyers to give your company a chance.

The Benefits of a Liberal Refund Policy for Customer Retention by Jonathan Corona originally appeared in Xbiz

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