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Refund Policy: Do Customers Who Refund Buy Again?

Matt Blevins
Updated 08/27/20 2:09 PM

How Does Your Refund Policy Impact Repurchase?

In the scope of ecommerce returns, several topics often emerge front and center as the top priorities.

How can I enhance the customer's return experience? How can I reduce my return rate? How can I drive more exchanges?

And these are all definitely valid, thoughtful questions.

But one is often left out of the discussion, despite its potentially remarkable impact on a brand's customer lifetime value and potential for future profitability.

Am I retaining customers who make a refund?

Why Does it Matter?

Ecommerce brands fight to acquire new customers.

The digital revolution has empowered diverse and independent businesses to thrive, promising the ability to serve any customer, nearly anywhere.

The downside of this immense opportunity is competition - there have never been more brands, retailers, and marketplaces reaching for the attention of consumers.

Put simply, it can be rather difficult and expensive to acquire new customers. Customer acquisition costs have long been on the rise.

Keep in mind that return rates hover between 10% and 30% for many ecommerce brands.

This means that a reasonable percentage of you first-time customers are enduring what many consider to be the most painful experience in ecommerce.

You've built enough trust to earn their purchase. Now they're not satisfied with the product they received, so they request a refund. 

At this critical moment in the customer journey it is important to remember the lifetime value of the customer. Your refund policy can go a long way to giving your customer a positive customer experience in the midst of a return.

How Many Refunders Purchase Again?

It's not a very satisfying answer, but it's often the most applicable response.

It depends.

The percentage of customers who repurchase after a refund will vary primarily by brand, return reason, and the type of customer.

Brand

Each and every business has its own repurchase rate, due to differing markets and customer retention strategies.

We can anticipate, then, that each retailer will have a different refund repurchase rate.

refund-policy-do-customers-who-refund-buy-again-repurchase-rate-brand

Brands have different retention mechanisms.

This encompasses not only the marketing technologies and playbooks they implement, but also the brand, products, and experiences that they create.

All of these factors come together to drive repeat purchases, with or without a refund. In this case, Brand D has the highest repurchase rate following a refund of the retailers shown.

We will dig deeper into this brand's refund repurchase rate.

Type of Customer

In most cases, the more purchases a customer has already made, the more likely she is to make the next purchase.

We have seen this in previous research into customer churn.

And the same is true in the case of refunds.

refund-policy-do-customers-who-refund-buy-again-type-of-customer

For Brand D, repeat customers have a refund repurchase rate nearly double that of new customers.

Especially in the case of a refund, the more purchases a shopper has already made, the more likely she is to make the next purchase.

Return Reason

Return reasons tell us a lot more than why products were returned. They give us a glimpse into the experience and sentiment of the customer making the return.

Let's say I return a shirt because it's a little snug for my taste. I am probably a lot more content than if I were returning it because of the style, material, or quality. 

And returns data confirms this concept. Return reasons can be highly indicative of whether or not the shopper will buy again.

refund-policy-do-customers-who-refund-buy-again-repurchase-rate-return-reasons

Most of the return reasons for Brand D have pretty comparable refund repurchase rates. Except one.

In this case, we see that customers who refunded due to quality were less likely to buy from this brand again than customers who refunded for other reasons.

A return is not just a return - it's a signal into the customer experience.

How Can I Retain More Refunders?

Of course, a great place to start is to improve your returns process.

This means removing friction from the experience, and offering a lenient return policy.

If you want to retain more of your customers who make a refund, you should also focus on your overall retention mechanism. This starts with your brand, your products, and the experiences that you create.

But, it takes more than that to maximize your repeat customer rate.

You need the right flow of post-purchase messaging, nurturing campaigns, and win-back tactics to retain shoppers. Timing and relevancy are key.

In addition to the more generalized retention approach, you should consider the cases of both new and repeat customers.

As we have seen, first-time buyers tend to have a lower repurchase rate, particularly after a refund.

They may warrant enhanced nurturing campaigns or targeted incentive offers to revitalize the customer relationship. It truly is a win-back situation.

And, of course, not all returns are the same. Return reasons can be highly indicative of the customer's experience, as well as her likelihood of purchasing again.

So, if you notice that a particular return reason has a substantially lower repurchase rate than others, identify and address the root cause of those returns.

By reducing these problematic returns, you will improve your refund retention rate.

Your Refund Policy is All About Playing the Long Game: Customer Lifetime Value

With high costs associated with acquiring new customers, it's quite possibly never been more important for ecommerce brands to focus on retention and repurchase patterns.

And since return rates typically fall between 10% and 30%, we simply cannot forget to accommodate shoppers who make a return, particularly for refund.

Returns data holds crucial information into the customer experience, and can dramatically inform a customer's future relationship with the brand.

Insights like these can help us transform a return into a returning customer.

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