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Why Your Business Should Have a Generous Return Policy

Author: Imagination Date: October 17, 2012

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Learn how a good return policy can help you attract and retain customers.

While most businesses accept returns, they are often seen as a necessary evil. Some retailers may even try to discourage returns by charging high “restocking fees.” On the surface, this approach makes sense: If customers have to pay a fee, they will be less willing to return the product.

However, according to a study from the Kellogg School of Management at Northwestern University, purchasing decisions depend not only on product price and features, but also on the return policy. If customers perceive they will lose money if they have to make a return, chances are high they will go with a competitor with a more generous return policy.

In addition, a poll conducted by Forrest Consulting showed that 81 percent of those surveyed said they were more loyal to retailers that have generous return policies (e.g., free return shipping and the ability to return any time for any reason).

Many small business owners agree that a generous return policy makes good business sense for several reasons.

More Sales

The purpose of a return policy is to encourage sales, not limit when and how customers can return something they are unhappy with, says Chip Averwater, chairman of Amro Music Stores, a fourth generation retailer of musical instruments based in Memphis, Tenn., and author of Retail Truths: The Unconventional Wisdom of Retailing.

"We don’t reluctantly offer a return policy, we promote it and advertise it," says Averwater. "I teach my sales people that a return policy is a tool, not a rule."

Jennifer Henry, owner, Smart Dog Stuff in Leesburg, Ga., says her revamped and generous return policy has resulted in higher sales. "Simply by making this change [offering price guarantee, free shipping and original shipping fee refunds] ... has helped our sales go from $100 a day to $500 per day," she says.

RELATED: Creating a Return Policy That Works

Customer Loyalty

Exceptional Sheets of Evansville, Ind., offers a 125 percent cash-back guarantee. Owner Paul Saunders says that many customers comment on this unusual return policy, saying it’s the reason they chose his site from which to purchase. He adds, customers have never asked for their money back. The 125 percent cash back guarantee not only helps Exceptional Sheets land new customers, but it also keeps previous customers coming back, Saunders says.

Low Rate of Returns

QCI Direct, a national online and print catalog company, has a 100 percent lifetime guarantee, unusual in the direct mail industry, says Kyra Mancine, who handles public relations, social media and copywriting for the Rochester, N.Y.-based company. "Often, just a customer knowing they can send something back, no questions asked, prompts them to order in the first place," she says. "We have a low rate of returns, and I attribute it to this policy."

RELATED: 3 Effective Price Anchoring Strategies

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