Creating a Smart Returns Policy

From wholesale giant Costco to clothing retailer L.L. Bean, corporate America has trained consumers to expect wide-open store policies that offer few, if any, impediments to returning items in exchange for their money back.

Many small businesses, however, lack the resources to adopt similarly indiscriminate policies. This is in part due to the high rate of return fraud, particularly during the holiday season. According to the National Retail Federation, 4.6 percent of holiday returns are fraudulent, which cost retailers an estimated $2.9 billion in 2012.

Here’s how smaller merchants can craft an intelligent, effective returns policy that will help build customer loyalty, encourage sales, and prevent theft.

Advertise Your Offerings Accurately

A good returns policy rests on setting clear expectations, including precise descriptions of the goods and/or services the customer will receive from you. For example, if sizes run small or batteries are not included, say so up front to avoid dealing with dashed hopes later on.

Another good approach to eliminating problem returns is to offer an extended warranty. This not only helps customers feel more confident about buying from you, but also bumps up your revenue to help defray the cost of follow-on customer service.

Explain Your Policy With Every Purchase

Advise every customer, perhaps even before purchases are made, about your returns policy. Bricks-and-mortar retail stores can prominently post signs at the checkout counter and print the policy directly onto customers’ receipts (or attach a separate sheet bearing an explanation). Websites can post a highly visible link to store policy and/or make reading it part of the checkout process.

Try to Solve Problems That Prompt Returns

Most customers have a reason for returning items to a store, so ask them why they’ve decided to do so.

This kind of questioning is best done with a smile and a helpful attitude, zero criticism of the customer, and an explicit statement along the lines of, “We like to get feedback from every customer who returns an item so that we can continue to improve everything we sell.” Once you know what the problem is, you can take steps to solve it — and avoid similar returns in the future.

Be cautious, however. There’s a fine line between asking enough questions to determine the problem and making the customer feel interrogated or intimidated.

Put Sensible Limits on Returns

The more liberal your returns policy, the less of an obstacle it creates in purchase decisions. That’s probably one reason Costco allows customers to return almost anything at any time.

Most small businesses, however, need to enforce stricter limits on returns. The time limit often depends on the item sold. Seasonal clothing, for example, has a short shelf life, so allowing returns more than 10 to 30 days after purchase drastically reduces the odds of reselling a garment. Longer-lived items, such as household supplies, tools, and hardwood furniture, may not be affected by trends, so you could perhaps accept returns within three months of the sale.

State How You’ll Issue Refunds

Where appropriate, stipulate that the item must be returned in good shape in its original packaging (unless malfunction or breakage due to product design is the reason for the return). Decide whether you’ll process returns by refunding the buyer’s money, issuing a credit, or only making exchanges.

If you’re operating an online business, there’s no clear-cut precedent for who picks up the shipping costs. Some firms require customers to pay for sending back returns, others cover the costs themselves. You could test both policies to see which works better for your business.

Re-evaluate your returns policy at least once a year to make sure you’re in step with, or ahead of, the competition — and helping rather than hurting your business.

About Robert Moskowitz

Robert Moskowitz is an Emmy-winning author and editor with a knack for conveying complex and difficult topics in a friendly, down-to-earth style.
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