Return Policies

May 29, 2006

A year ago, I was dithering about buying a research report from MarketingSherpa, because it was $299 (for a book!) I couldn’t find it used anywhere. I didn’t want to spend 300 bucks just to find out that I had wasted my money. After hemming and hawing for two weeks, I noticed that Sherpa had an amazing return policy — if you weren’t satisfied for any reason, you could return the report within 30 days for a full refund, no questions asked. The reason the policy was so amazing was, you could purchase an online downloadable version and you could still get the refund — you just had to delete the report from your computer. Clearly, they had no way of monitoring your behavior. You were on the honor system. Obviously, MarketingSherpa saw the guarantee as a form of investment — yes, there would be a few cheaters, but the people who purchased because of the guarantee would far outweigh the money lost to cheaters.

I am always trying to convince my customers to have similar policies. They say things like, “If the customer returns the product to us, it becomes unsaleable. Or they allow returns, but make the terms really onerous. (Limited time, must be in the original packaging, restocking charge, etc.) I should lecture them on selling seconds on eBay, “open box” sales, but that’s a different post.

A great return policy is a marketing investment. In the short term, you are betting that the profit from the customers who buy (and wouldn’t without the return policy) outweighs the cost of the few who do return the product. Over the long term, you have to factor in the benefits of acquiring a new customer and what their lifetime value will be, as well as the value of the customer who returned the product. Maybe she did return it, but for a good reason. She sees that you are a pleasure to work with, and will be back.

BTW, the new MarketingSherpa eCommerce Benchmark Guide 2006 shows that returns as a percentage of online sales, for web-only business, is 7.3%. They have lots of other fascinating statistics as well.

Robbin Steif