Returnalytics: Is Making it Harder to Return Items More Profitable for Your Business?

Welcome to the recap of ReturnLogic’s 1st Podcast! The Returnalytics Return Management Podcast discusses the latest retail trends, technology, and best practices for managing an ecommerce business and retail returns. We’ll be having conversations with the best and the brightest in the online shopping ecosystem (ecommerce store owners, partners, and thought leaders) and do our own digging to uncover the real truth behind running an ecommerce store. Listen in as we uncover how retailers can manage and optimize their returns strategy, saving time, and labor, and ultimately increase customer loyalty and lifetime value. For our first episode, we tackled a very common returns question: Is making it harder to return items more profitable for your ecomm business? We’ve done the research to clear some things up and the results may surprise you. Listen to the full episode on Spotify, watch the video on YouTube, or get the summary below. 

Restricting Product Returns

So, are strict return policies more profitable for your business? Well first off, how do you make it harder for customers to return items? There are a number of techniques. Some of the most common are: 

  1. Restricting the returns window
  2. Limiting the types of returns
  3. Limiting types of products eligible for a return

They all guarantee the same results: customers that are unable or unwilling to return a product through a complicated process, save the company from a loss of sale and the cost of refurbishing and restocking the product. But, does this really save you money in the long run?

How do Return Policies Affect Consumer Behavior?

The best data on the subject comes from a study conducted by researchers at the University of Texas-Dallas who tried to identify changes in shopper behavior by manipulating elements of a return policy. They categorized each element as “strict” or “lenient” to determine how the flexibility of returns affects consumer behavior. The outcome seemed to confirm the intuitive theory of the myth: that a stricter return policy leads to fewer returns, therefore, protecting company profits. They also found the opposite to be true: the more lenient a return policy is, the more returns it’s likely to produce. It seems like the case is closed, right? But, the answer isn’t so simple. In order to really get to the bottom of the myth, we also took a look at the potential reasons a company might adopt a more lenient return policy.

Why Should a Retailer Have a More Lenient Return Policy?

Despite what we learned from the UT Dallas study, many companies still offer returns with fewer restrictions. Why? To increase customer-centricity. 

Customer Centricity

A more flexible returns policy gives ecommerce merchants the opportunity to understand their customers’ situations, perceptions, and expectations. These insights enhance the customer experience and increase their customer lifetime value. Think of it this way: When a customer initiates a return, assume they’ll tell a friend. Would the person recommend the brand to their friend? That all depends on their return experience. 

Thus, return management isn’t just about limiting and processing returns;

It’s about optimizing return rates and handling a delicate and often overlooked part of the post-purchase customer experience.   

 Complicated and strict return policies cause customers frustration. That’s bad for business.
Frustrated ecommerce customer
It’s hard to keep repeat customers after an unsatisfying shopper experience or return, thus making it hard to grow. A return policy that prioritizes a positive post-purchase experience and excellent customer service leave customers feeling pleasantly surprised at how easy the returns process was. This increases the chance of them giving rave reviews to their friends. Beyond improving customer care, a lenient return policy can also help improve products. 

Improved Product Quality, Descriptions, Process & Design

Returns happen for a reason. More often than not, a returned item means that something went wrong somewhere along the way, either in

  • Product design
  • Description
  • Processing
  • Shipping.

Are Lenient Return Policies More Profitable for Your Business?

Going back to the UT Dallas study, it’s important to note that while the companies with more lenient return policies did have more returns, they also had more purchases. A strict return policy may make customers think there’s something wrong with the product. Why would you make it so hard to send it back otherwise? Plus, a flexible return policy lowers the risk of purchase for pending customers. This makes them feel more comfortable with spending more of their money and increases their positive perception of the brand. One surprising finding of the study shows that more leniency in a return policy, specifically with the timeframe of a return window, is associated with a reduction — not an increase — in returns. This is the result of the endowment effect, which states that the longer a customer has a product in their hands, the more attached they feel to it.

The endowment effect states that the longer a customer has a product in their hands, the more attached they feel to it.

New Post Purchase Customer Experience

Here’s the thing, whether you like it or not, lenient return policies may be where the future of ecommerce is heading. Just check out these results from a study done by Splitit to see how online shoppers behaved. The bottom line is, difficult return policies are ultimately detrimental to your business because the returns process impacts the customer experience. A positive post-purchase experience encourages customers to buy again and to remember your brand fondly when talking to their friends. In short, having a convenient return policy builds customer loyalty, improves customer lifetime value, and positions your brand in a positive light with your customers. So, is making it harder to return items more profitable for your ecommerce retail business? The results are in and here’s the conclusion we’ve come to: A strict return policy Rather than making your ecommerce return policy restrictive or elusive, try to make it as accessible and accommodative to the customer as possible, while keeping your bottom line in mind.