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Top 4 Reasons Your E-Commerce Store Needs a Return Policy

Shannon Harper
Updated 04/20/21 3:27 PM

Many e-commerce professionals view return policies as a necessary evil. After all, a third of most e-commerce sales result in a return. However, when used correctly, return policies are hidden gems. They can improve customer conversion rates, increase repeat customers, skyrocket profitability, and boost brand perceptions. 

While reducing returns is essential, it's equally important to implement a return policy that encourages brand loyalty. In fact, many retailers have made their return policies even more lenient over the past year. The pandemic's shipping lags have forced many e-commerce brands of all sizes to push their return windows back. However, these brands have increasingly found that their new policies have led to higher sales and lower returned items.

A 2014 Journal of Retailing study suggests that there are five primary return policy elements: 

  • Time: Retailers specify deadlines in their return policies (e.g., a 30-day policy, a 90-day policy). Policies that provide more time to return products are more lenient.
  • Monetary: Lenient return policies allow for a full refund of the amount paid for the product, while strict policies allow only a portion of the purchase price to be refunded.
  • Effort: Some retailers create guidelines for customers returning products (e.g., requiring the original receipt, tags, or product packaging to be retained). Return policies requiring less effort from consumers are more lenient.
  • Scope: Stores limit items they consider "return-worthy." For example, products purchased on sale may not be eligible for return. Policies with a greater extent of "return-worthy" items are more lenient.
  • Exchange: While some retailers offer cash refunds, others provide store credits or product exchanges for the returned items. Return policies that allow cash refunds are more lenient.

The study also concluded that overall, lenient return policies led to increased purchases. What's more, studies also conclude that lenient return policies lead to a decrease in returns.

For example, Jenn Kapahi, co-founder and CEO of TreStiQue, extended its exchange policy from thirty days to sixty days back in March of 2020. As a result, the company saw its return rate drop by 30% over the following four months. It also experienced a 44% increase in routine sales vs. individual product sales.

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There are four primary reasons that your online store should implement a customer-focused return policy.

1. Your customers want to see a return policy before making a purchase.

Ninety-one percent of consumers interviewed in a recent Harris Poll said that a store's return policy was an essential factor in making a purchase decision. Additionally, according to a study completed by TrueShip, over 60% of customers review a return policy before purchasing decisions. 

When a return policy is well-written:

  • More purchases will occur if given the option to return products.
  • Consumers are willing to pay more for the option to return an item.

2. A good return policy can improve customer retention.

Customers who experience a good return experience are more likely to come back and shop again. In fact, e-commerce businesses with at least 40% repeat customers are likely to have 50% higher sales

According to one 2019 UPS study, 36% of online shoppers had made a return in the previous three months. Out of these shoppers, 73% said their returns experience would affect their decision to buy again.

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3. Implementing a return policy with insights can increase profitability.

By analyzing customer feedback, retailers can gain a better understanding of why certain products return.

E-commerce brands can aggregate customer feedback into different reasons codes, types of products returned, product manufacturers, product attributes, and more. 

Then, retailers can collect and find common factors between products. Exploring deeper into the specific return reason codes can pinpoint the cause of the problem. 

If one product receives returns because it is defective, retailers can reach out to the manufacturer to fix the defect. After the fault is fixed, returns will go down, and sales will most likely increase. 

4. Return policies improve public brand perception.

There are a few reasons why return policies improve brand perception.

  1. The longer a customer owns an item, the more attached they feel to it
  2. Customers who have a positive return experience are more likely to shop from an online retailer again. In fact, according to a Navar study, 95% of online shoppers say that a positive return experience drives loyalty.
  3. Consumers with positive experiences are more likely to share their experiences online. Positive return experiences lead to positive shares, while negative return experiences lead to negative shares.

"Most shoppers are frequently returning online purchases while remaining loyal to brands if they have a positive experience," says Narvar CEO, Amit Sharma, in an announcement covering Narvar's survey findings. "Retailers who want to remain competitive will find ways to reduce friction in the return process."

Returns are simply another opportunity to improve brand rapport and provide a positive customer service experience. When the brand return experience is positive, it increases sales, decreases returns, and drives customer loyalty. When paired with return insights, a customer-driven return policy can lead to better business decisions and increased profits.

While many e-commerce stores spend 80% of their marketing budget on customer acquisition, it can be lucrative to focus on retention tactics such as customer return policies. In fact, 41% of an e-commerce store's revenue is created by 8% of repeat customers. Returns help to increase the Customer Lifetime Value (CLV) of an e-commerce store.

Repeat customers are more likely to shop from an online store again, are easier to sell to, spend more on each purchase, share positive posts about brands, and increase overall profitability. 

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