Discover 5 return policy features that can help businesses improve customer satisfaction, boost loyalty, and protect net revenue.

While vague or overly strict return policies can discourage purchases, the right policy can be a powerful tool. In addition to streamlining the actual return process, return policies can improve customer satisfaction and customer loyalty. Plus, considering that certain times of the year (back-to-school, holidays, etc.) tend to see more returns, a clearly defined policy can protect net revenue.

So, how do you determine what features to include in your return policy?

The truth is there’s no one-size-fits-all policy. For example, businesses that are solely brick-and-mortar will have different needs compared to e-commerce or omnichannel stores. Businesses that ship products internationally may need to provide a longer return window or even charge for return shipping.

That’s why it’s so important to review various policy features and how they impact your bottom line. Fortunately, data-driven insights from returns analytics can help you develop a policy that caters specifically to your customers and your business needs.

1. When is a Full Refund Appropriate?

For customers, one of the most important aspects of a return is whether they’re going to get their money back or receive the right product. For a customer who ordered an incorrect garment size but is otherwise happy with the product, a simple exchange is the solution. However, a customer who decides they don’t actually need or want a product might not be satisfied with an exchange or store credit.

For that reason, full refunds are one of the most well-known types of returns. In the example above, where the customer does not need or want the product anymore, a full refund is likely what the customer hopes for.

The biggest drawback to full refunds is that it creates a discrepancy between top-line sales and net revenue. In addition, stores may be receiving products back into inventory that aren’t sellable, and they also take on the cost of shipping unless they charge the customer for return shipping or a restocking fee.

Even in the best-case scenario, a full refund means a complete loss of sale and taking on the cost of return logistics (shipping, carrying costs, etc.). So, while the customer is likely satisfied with a full refund, a business must decide whether their loyalty outweighs the costs incurred from such a transaction.

2. Should You Offer Exchanges or Store Credit?

Offering exchanges or store credit is an efficient way to protect net revenue without accepting unwanted products back into inventory and attempting to sell used items. For example, variant exchanges (exchanges involving size or color variants of a product) are generally simple transactions that protect the sale and keep customers satisfied. Even simple variant exchanges, however, may involve additional labor or material costs if the product can’t be resold or requires rework.

On the other hand, full product exchanges (exchanges involving completely different products) leave room for both loss and additional sales. While they encourage additional shopping, the cost of their next transaction could exceed or be smaller than that of the initial purchase. The former means more sales, while the latter will result in a refund of the price difference.

Offering store credit or gift cards can negate some of that risk, but it doesn’t necessarily incentivize customers to continue shopping right away. Additionally, depending on a variety of factors like return window and product type, offering full store credit may not be cost-effective.

3. When to Offer Final Sales with No Refunds

Final markdowns are a useful tool to move inventory that’s out-of-season, obsolete, or simply performing poorly. Customers often purchase final markdowns because it feels like they’re getting a good deal, and retailers benefit because it allows them to liquidate inventory that may otherwise not be very profitable.

While prohibiting returns on final markdowns is usually an effective method to curb returns on older versions of products or on highly discounted items, this only works if the “No Refunds” part of this policy is actually enforced.

Whether returns on final markdown items are happening because of a lack of policy enforcement, a design flaw on the website, or a glitch within your post-purchase platform, even a small percentage of returns on these items means that a business can lose millions of dollars.

4. Finding the Ideal Return Window

This aspect of a return policy helps ensure that returns occur within a specific time frame. For customers, this lets them know how long they have to try the item before deciding whether to return it. This is important for managing customer expectations, but there are several factors that should be taken into consideration when setting this window.

First is simply looking at the standard return window for your industry. Customers are likely already familiar with this return window, so it won’t be a surprise. Plus, depending on the industry, it makes sense for some windows to be longer or shorter than others. The window for electronics, for example, is often longer since these products are usually higher value, may have a longer lifespan, and customers may need more time trying them out.

That brings up another important factor: product type. Products with a short shelf life or expiration date shouldn’t have a long return window. This deters customers from returning products that can’t be resold. Conversely, high-value products with a long lifespan (furniture, electronics, etc.) may require more consideration from customers. In that instance, a longer return window will make them more confident with the purchase.

For businesses that sell many types of products, offering different return windows for specific product types may be the best option. While there are other factors that should be taken into consideration (return costs, fraud prevention, seasonal return windows, etc.), the ideal return window keeps customers satisfied and protects net revenue.

5. Free Returns vs. Return Charges

Perhaps the most recent change to return policies is whether or not businesses will charge additional fees. In the past, many businesses offered free returns as a way to improve customer satisfaction and loyalty. The customer benefits of free returns are pretty obvious, but the cost to businesses can be extensive.

Perhaps one of the biggest risks associated with free returns is the discrepancy between top-line sales and net revenue. Customers will feel confident making purchases since they know they can return them for free. This leads to an increase in top-line sales, particularly when these policies are first enacted. As customers begin utilizing the free returns policy, however, net revenue will take a hit.

Additionally, that scenario assumes customers are using this policy ethically. There’s also the risk that a portion of customers will abuse the policy by regularly returning items after using them once or twice.

To mitigate the risks while still providing this feature, many businesses now offer free returns in specific situations (product categories, loyalty programs, seasons, etc.). Conversely, some businesses are now charging for various aspects of returns.

While customers may be loyal to brands that offer free returns, that doesn’t always translate into higher net revenue. Restocking fees or charging for return shipping can offset some of the costs associated with returns. Obviously, customers are never going to prefer this option to free returns, but practices like curbside drop-off can be a good compromise in some instances.

Find the Right Return Policy With Data-Driven Insights

From industry-specific factors to emerging consumer behaviors, developing the right return policy is complicated. What’s right for one business may be entirely wrong for another. That’s why we’re taking out the guesswork.

Instead of implementing a policy and assessing its success after its already impacted sales, data-driven insights can help you develop a policy that caters specifically to your customers and your business needs. Whether that means implementing a dynamic return policy or a blanket policy, the Returnalyze Intelligent Dashboard gives you access to data that will help you create your ideal policy.

In addition, our experts will be there every step of the way to help interpret data, provide guidance, and offer actionable steps so you can use this information effectively. Partner with Returnalyze for less guesswork, fewer returns, and higher net revenue.

If you’d like to see how our intelligent dashboard can help inform your return policy, schedule a demo or contact our team today.