The #1 Mistake Retailers Make That Increases Customer Churn: A Bad Returns Policy. Returns are a massive pain point for many retailers, particularly those in ecommerce and apparel. That leads many to make short-sighted decisions in an effort to stop the bloodflow. They create return policies that are overly restrictive and onerous in order to reduce return rates. Such policies include requiring multiple return authorization steps, imposing strict deadlines or implementing restocking fees.

Such measures might appear to work in the short term: They drive down return rates and recoup at least some of the lost value. But they have substantial unintended consequences: Increasing customer churn and driving away potential customers.

According to The Unexpected Benefits of Product Returns, new academic research has found that because stringent return policies raise the risks for a customer making a purchase, they actually decrease consumers’ willingness to buy a product. Instead of focusing only on the short-term costs of a return, the researchers argue, taking a closer look at how a customer’s return and purchase behavior relate helps retailers identify good customers who actually spend more when they feel comfortable with a retailer’s return policy, increasing profits. That’s what actually happened for a retailer participating in the research, driving more than $58 in additional revenue per customer than the next-best strategy used in the test. It’s all about lifetime customer value, and recognizing the significant role returns plays in that equation.

So the higher your return rates, the more customer relationships you are damaging with a bad returns policy.

A bad returns policy increases customer churn.

The impact of customers’ perceptions of return policies is just one of the little-understood areas of retail returns. Few retailers implement accurate data collection around the reasons for a return or track comments about returns on social media. As a result retailers miss significant opportunities to gain insights into customers and how they feel about both the products a retailer sells and the return policies they maintain. Returns are ripe for the application of advanced analytics to this data.

Retailers that are not taking an analytical approach to their returns processes are missing out on a huge opportunity to understand and satisfy their customers. And unsatisfied customers churn.