Lenient Refund/Exchange Policies: The Hidden Perks to Retailers

In my last post, I wrote about my experience with Old Navy's new denim line and raved about their impressive customer service and refund/exchange policies. Having a good refund/exchange policy is an important part of customer satisfaction for many retailers and consumers. If a customer buys something that later turns out to be of poor quality or defective, a good policy guarantees that the customer isn't stuck with something they'll be dissatisfied with. That part of the equation is obvious. The store policies are a valuable customer service.

For the retailer, the benefits of a good policy far outweigh the loss in sales revenue from a returned item. A good refund/exchange policy can mean better business than if there were a really strict policy in place. There are many reasons why this is the case.

Happy customers equals free and effective publicity. Happy customers who have experienced no-hassle returns and exchanges are more likely to be repeat customers and to promote the store by word-of-mouth--much more effective and less expensive than elaborate marketing campaigns. On the flip side, a lot of negative word-of-mouth can throw a retailer's public relations and marketing departments into overtime as they try to do as much damage control as possible, sinking heavy dollars into advertising to counteract bad publicity.

Indecisive customers might be persuaded to buy something they feel so-so about. Suppose I walked into a store and saw a beautiful wool coat for $175. I know that by the time I wait for it to go on sale the one in my size will be gone, but I think the price is a bit steep and I'm not convinced I really need that coat. If the sales clerk informs me that I can buy it for now and bring it back if I change my mind, I might very well purchase it and mull it over at home. Chances are this has happened to many people when they go clothes shopping, and they have ended up keeping the item because they find they really love it.

In some cases, customers end up buying more than they did originally if they do a store return. This actually happened to me yesterday. My mom accompanied me to Old Navy when I exchanged my jeans, and we both decided that we might as well browse around while we were in the store. My mom spotted a belted corduroy jacket, and I fell in love with a cable-knit bag. (See below for pictures!)

It's not as big a setback to retailers as you may think. What about retailers who accept returns on worn items, you ask? After having worked in retail, I know that defective items can be sent back to the manufacturer to be replaced. If the item isn't defective but has been used, it can be donated as part of a charitable tax deduction, sold to consignment stores, etc. For a big chain store, returns of merchandise here and there can add up.

Given a worst-case scenario, a strict return policy is better than no policy at all. I know there are some people out there who take advantage of generous refund/exchange policies. I've heard stories of people wearing clothes once with the tags still on, then returning them so that they can wear the latest trends at no cost. I also understand not all retailers can afford to be as generous in their refund/exchange policies as Gap Inc. is. Small and independent retailers, for instance, operate with limited resources and a sudden spurt of returns could hurt their bottom line quite a bit. Then there are the petty thieves who return stolen merchandise for cash. Because of these situations, I can understand why many retailers are wary of having lenient policies. But they have come up with creative solutions to limit instances of fraud, including:
  • specifying returned merchandise must be unworn, unwashed, with tags on--in short, in resellable condition
  • requiring receipts be presented and refunding the customer via the original method of purchase
  • asking for customer information for the return
  • giving the customers gift cards or credit notes instead of cash

In the end, what matters is that a good refund/exchange policy is a balancing act and a bridge: It balances the interests of consumers and retailers while aiming to satisfy their needs, and it helps both groups meet in the middle.

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