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How to Stop People From Exploiting Your Return Policy

If you sell physical products online, there’s nothing more frustrating than customer returns.

Best case, it’s just annoying. For you AND for your customers.

Worst case…

You have to deal with people that EXPLOIT your policies. These people have no intention of buying. It’s borderline stealing.

The good news is:

I just read interesting new research that may help you reduce customer returns by up to 37%.

Why Your Return Policy Is More Important Than Ever

First, let me ask you a question:

Are refunds and returns always a bad thing?

From a sales perspective, the answer is:

No.

I’ll explain.

If your return rate is 0% you’re leaving money on the table. “NO returns” means you’re not selling to people who are on the fence about buying.

And that’s bad.

Because 80% of your sales are going to come from people who are not totally certain they’ll love your product.

So, if you sell only to the people that already know they’ll love your product, you’re missing out on the bulk of buyers that will always have some doubt remaining when they buy.

That’s also why your refund policy is so important. In fact, it’s more important today than it ever was…

Look, most people EXPECT a lenient return policy.

A recent UPS survey proves this:

Apparently, 66% of online shoppers look for a retailer’s return policy before they buy. And 88% of those people won’t buy unless you offer free returns.

So, it’s no surprise the de-facto standard in e-commerce is to offer free returns:

Example: ASOS free returns

Example: Macy’s free shipping and free returns

And it’s smart. A persuasive guarantee can increase sales by up to 300%. The problem is that some people take advantage of these policies…

The worst? People that buy WITH THE INTENTION of only using your product once… and then return it. I HATE these people. Because really, how is that different from stealing?

Then there are people that order a bunch of stuff just to check it out. Still kind of annoying. But I get it: When customers buy something like clothes online, they’ll want to try them on for size. As a store owner, it’s a smart policy to give people that opportunity.

However…

Depending on what you sell online, you have to deal with an absurdly high rate of returns.

Of course, this is not a new phenomenon:

The Wall Street Journal reported that as much as 30% of all online purchases are returned.

So what can you do?

Is This the New Way of Reducing Absurdly High Return-Rates?

You may find this new research helpful if you want to reduce your return rate…

In a study published in the Journal of Psychology & Marketing, researchers from the University of Eichstätt‐Ingolstadt and the University of Luxembourg presented the following idea:

The present research introduces a keep reward (i.e., providing incentives to keep a product) as a new promotion strategy to improve the conventional lenient policy.

Interesting!

What if you gave people a “Keep Reward”?

In other words, an incentive to NOT send back the items they ordered.

Hmm… Could this ever make sense? Will people keep a product – even if they’re not fully satisfied – because of a small reward?

What’s fascinating about the idea is that it doesn’t take away any of the sales benefits of a lenient return policy or guarantee.

Meaning: You could still offer free returns AND a reward. That way, customers can still make purchase decisions with little or no risk. The researchers actually tested and were able to confirm this.

But back to reducing returns…

Does a Keep Reward actually work?

To find out, the researchers ran 2 studies.

In the first study, they gave people a written scenario:

Participants had to imagine that they want to buy a new summer outfit. Specifically, a pair of pants and a T-shirt.

To test the idea of a Keep Reward, some people were told that they’d get free shipping on their next order if they keep all items.

The result?

The Keep Reward reduced the intention to return by 37%.

So, this first experiment seems to confirm the theory: A reward can reduce customer returns.

But does this work in the real world? Yes. It’s almost exactly what the personal shopping service StitchFix does:

Stitch Fix works as a subscription service. Every time you buy all the items they send you, you get a 25% discount.

Now, it’s not exactly the same as in the study. Because remember: The “free shipping” incentive in the study specifically rewarded FUTURE PURCHASES.

This is not to say, the discount on the current purchase won’t work. But it’s important to notice the difference…

Here’s why:

To confirm the findings of the first study, the researchers ran another experiment…

And in the second study, the context was slightly different:

This time, participants were asked to imagine buying a leather cell phone case. And in this scenario people had to imagine that 1) the case fits their phone perfectly but that 2) they don’t like the case 100%.

Again, the study tested the same Keep Reward: free shipping on the next order. But this time…

It didn’t work!

The Keep Reward actually made it worse!

Huh? What happened?

Why Incentives Can Help (Or Hurt) Your Return Rate

The researchers were able to test and explain the conflicting results of the 2 studies.

How?

Well, further analysis showed that the Keep Reward actually DID work in the phone case example, too… BUT ONLY for FREQUENT SHOPPERS.

And it makes sense:

If you buy often, free shipping on the next purchase is a nice incentive. And the more frequently someone buys, the bigger the effect. But if you buy less frequently, the reward may come off as a manipulative persuasion trick – and people DON’T like being tricked.

So, buying frequency matters.

But here’s what’s still kind of weird:

Why did the Keep Reward work across the board in the first study?

The difference lies in the TYPE of product.

In the first study, the product was clothing – probably the industry most plagued by excessive returns. In the second study, the product was a phone case…

When someone buys clothing online, there’s always the issue of things not fitting right. With a product like a phone case, that problem doesn’t exist. Now, people might still return an item like a phone case, but it’s much less likely.

To quote the research paper:

The results suggest that a keep reward is most powerful in this return-sensitive industry.

In other words, the more likely people are to exploit a lenient return policy for a certain product, the more effective a Keep Reward should be in reducing return rates.

Here’s what this all means for you…

What These Results Mean For You

A Keep Reward is a fascinating idea if you want to reduce customer returns. Especially if people tend to EXPLOIT a lenient policy at your cost.

But you need to be careful not to make things worse with the wrong incentive…

In the end, you’ll have to test if this works for you. Based on this early research, here’s what you need to think about:

Are you in an industry that’s plagued by excessive return-rates?

If the answer is yes, a Keep Reward may work for you. There are different incentives you could test: free shipping, a coupon for the next purchase, or a free gift with the next order.

Also, consider this:

It will work best for low- to mid-priced products. Why? Well, for a $25 T-Shirt a $5 free shipping coupon makes a difference. For higher-priced items, a low reward might not have an effect, and a high reward might not be financially feasible.

If you do implement a Keep Reward, it’s best to be upfront about it. Both for legal and general transparency reasons (you should check with a lawyer when you update your return policy).

But remember, you need to be careful!

If you’re not dealing with a crazy high return rate across the board, you MUST differentiate between frequent buyers and non-frequent buyers.

And the Keep Reward should be applied ONLY to frequent buyers.

For example, you could make it part of your loyalty program. That way, you can reduce your return rate, and people who only buy once won’t feel discriminated.

Cool?

Now I’d like like to hear from you:

What do you think about the idea of a Keep Reward?

Do you think it can work in your business?

Leave a comment and let me know.

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4 comments Leave a comment
Ryan

Hi Derek –
Great article and fascinating topic. I am curious, outside of Stitch Fix, do you have any other real world examples of brands currently using this reward incentive to reduce returns?

Thanks,

Ryan

Rohish

Hey Derek ! I really appreciate the idea of ‘Keep Reward’. But i’m doubtful about the consumer reaction on this terms. i think the people would be more suspicious while checking out… maybe they would have in their mind in negative sense that why the seller is including such policy like there would be some kind of glitch in product , so that seller is insisting on keeping the product. The buyer will be pessimistic.
it would be great if you can guide me for meeting this consumer reaction.

Dave

Great Advice Derek. You are always the Man. Happy to read your articles.

Ryan Biddulph

Fascinating idea Derek. I sell nothing physical but some wish to return stuff, or get money back. But I include a no return aka no money back policy on all I offer. Here’s why: I offered thousands of pieces of free content over a decade I spent online. Anybody who buys my stuff or hires me as years of content to sift through, to get if I offer something up their alley. If they choose not to do research before paying for me or my stuff, that is their choice. Gotta have some posture in the online game, right?

Ryan

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