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Extended refunds are not a curse
Extended refunds are not a curse

Uncover rewards with extended refunds

Extending the refund period will generate goodwill benefits for retailers without significantly adding costs, proving it is not the death wish it may be perceived to be. DAVID BROWN reports.

I’m sure that headline alone will prompt a reaction from readers. We all know how fickle consumers can be, so surely offering an extended opportunity to return an item beyond that required by consumer law is only inviting problems, right?

An extended guarantee may result in more refund requests than you are currently receiving but let’s weigh up the cost against the benefit.

Reduced risk

Firstly, what stops customers from buying? One of the key factors that makes customers hesitate is perceived risk.

What if an item is faulty? What happens if they find something better afterwards? What if they see the same item for less?

These scenarios will play out in the heads of customers while they are making their purchasing decisions. If you doubt this, listen to your own voice when you next make a purchase decision.

Understanding your customers is about tapping into their psyche, recognising the same thought patterns you also use when you buy.

Time waster myth

Let’s deal with the elephant in the room – those customers who will only exploit any loophole that retailers give them.

What percentage of customers is this? What percentage of items sold do you ever get refund requests for? Chances are it’s not as many as you think.

"Do you follow the legal requirement and not a day more or do you use your refund policy as a marketing tool that can help get your conversion rate higher?"

We tend to focus on the isolated cases and see them as representations of a larger percentage but the reality is often different.

Your customers actually don’t want refunds; they don’t deliberately take the time to buy items they know they’ll have to return. Most people are interested in making the right purchase, as are you.

Secondly, if you do offer refunds, are you any worse off than if that customer hadn’t purchased?

Provided it’s not a specific order or make, you can generally return the item to inventory, refund the customer’s money and move on. Everyone is back where they started.

Help not hindrance

Instead, let’s consider how refunding helps your business. Again, it deals with that issue of perceived risk – if your customer has unresolved issues then they won’t buy; if they believe the risk of buying is greater than the benefit of making the purchase then they won’t buy.

Any steps you can take to reduce this risk will only increase their chances of making a purchase decision.

Money-back guarantees are part and parcel of the offering of most online stores these days. They have a distinct disadvantage over physical stores in that no one gets to touch the product until they have paid for it. Consumers are now expecting the same of bricks-and-mortar retailers.

The advantage you have is that the physical handling of the item prior to purchase will significantly reduce your chances of having a refund, plus you don’t generally have to cover any freight costs in having the item returned.

Extend to excel

How long should a money-back guarantee period last? The longer the better.

If I sold you a car for $25,000 and told you that you had until 5pm tonight to return it if you weren’t happy, chances are you would spend the next few hours giving that car a good workout and check over to make absolutely sure it was going to be ideal.

If I told you however that you had a month to decide, chances are you would relax and probably not be as vigilant in performing checks than you would be if your deadline was more urgent.

Humans are lazy by nature and we don’t tend to do things until necessary. Make the returns deadline as distant as you can and chances are in won’t even be done at all.

The longer the refund period, the less likely customers are to activate it – it’s the same thinking that underpins the strategy of gift vouchers, which often go unclaimed.

What’s your refund policy? Do you just follow the legal requirement and not a day more or do you use your refund policy as a marketing tool that can help get your conversion rate higher?

Offering an extended returns period might seem like madness but sometimes there’s method in that madness.

Benefit from the goodwill of offering longer refunds and watch your reputation improve in the eyes of the customers.

David Brown

Contributor • Retail Edge Consultants

David Brown is co-founder and business mentor with Retail Edge Consultants. Learn more:

RR Diamonds Australia

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