How to Write a Return Policy for Goods

By Thomas Bennett Financial expert at Priceva
Published on November 21, 2023
Without a proper returns processing system, managing returns can become a time-consuming, energy-sapping, and costly aspect of running an online retail operation. The silver lining is that this challenge can be effectively addressed. With a well-conceived and clearly articulated returns policy, what is often seen as a hazardous aspect of commerce can be transformed into an opportunity—an opportunity that can both generate profit and enhance customer loyalty.
But before we dive into crafting an effective returns policy for your store, let's discuss why it's critical to manage returns correctly.

Returns are a fact of life in online business. According to estimates by Deloitte and Invesp, around 30% of all online ordered products are returned. That's nearly one in every three items!

Furthermore, 92% of consumers say they would buy again if the product return process is easy. On the flip side, if the return is impossible or challenging, retailers risk losing almost all of their customers!
The primary reasons for returns include:

- Receiving the wrong item — accounts for 23% of returns,
- Products that look different from their online listing — 22%,
- Items being damaged or defective upon arrival — 20%.
Other reasons for customer returns can include:

1. Mistaken delivery, where items are sent to the wrong address due to an error by either the staff or the customer.
2. Impulse buys, where a customer makes a hasty purchase decision and later retracts once they've cooled off.
3. Multiple option buying, where customers, unsure about sizing, order several sizes of the same item to find the perfect fit and plan to return the rest.
4. Various unforeseen circumstances such as "needed the money urgently," "changed mind," or "didn't have time to pick up from the collection point."

Currently, 49% of retailers offer free return shipping, but only 67% of customers check the return policy before making a purchase.

Customers are even hesitant to shop online without a return option — 62% are more likely to buy online if they know they can return the item easily.

What is a Return Policy?

A return policy is a set of rules established by a retailer about how customers can return or exchange unwanted merchandise they’ve purchased. The policy is created by the retailer, based on the laws that govern return practices, and it informs customers about what items can be returned, for what reasons, and within what timeframe.

Why is a Return Policy Important?

A fair return policy strengthens the trust between a business and its customers. In fact, offering a clear and consistent way to return purchased goods can increase the number of conversions and repeat purchases.

Nevertheless, order returns lead to a loss of profitability, and the realization that someone disliked your product can be disheartening for retail owners.

Let's discuss why, despite the painful nature of this aspect, it cannot be ignored.

The Pitfalls of a Poor Return Policy

Over time, customer complaints about return policies can start seeping into social networks, surfacing as comments on product pages on your website, and in review forums. A poorly implemented return system can begin to negatively impact the overall reputation of a business. If adverse opinions begin to spread online, it is highly likely that this will lead to a drop in the conversion rate.

Manually processing each specific return can be a costly business operation, not to mention tiresome for customer service staff. If the time and expenses associated with processing returns aren’t tracked and optimized, it can hinder business development.

The Benefits of a Customer-Centric Return Policy

Many innovative companies have recognized that a customer-centric return policy is a powerful marketing tool. As customer acquisition costs rise, many businesses are looking for ways to retain customers and increase their lifetime value.

According to Pitney Bowes, 54% of customers are unlikely to purchase a desired item if the seller has a poor or unclear return policy. This is why many brands advertise “free,” “easy,” and “hassle-free” returns to increase the conversion rate of online purchases.

While returns can cost a business in terms of immediate profit, improving the quality of customer service is likely to lead to higher levels of retention and long-term revenue growth from repeat purchases.

How the Return Process is Regulated

In the United States, return policies are largely dictated by the retailers themselves rather than specific federal laws. However, the Federal Trade Commission (FTC) does have guidelines to ensure that merchants adhere to their stated return policies and treat consumers fairly.

The Uniform Commercial Code (UCC), adopted in some form by most states, also provides consumers with certain protections, such as the right to return a defective product. Beyond that, state laws may dictate additional rules for returns, warranties, and consumer protections.

For a return policy to be legally sound and customer-friendly in the U.S., it should clearly state:

- The timeframe in which a customer can return a product.
- The condition that the product must be in for a return (e.g., new, unused, with original packaging and tags).
- The process for returning the item (e.g., in-store, via mail, etc.).
- If the customer can expect a refund, store credit, or exchange.
- Any restocking fees or other potential deductions from the refund amount.

Retailers are expected to establish a fair return policy and communicate it effectively to their customers. For instance, if a product is purchased, the seller must honor any claims to refund or exchange as per their stated policy.

Additionally, some states have specific laws about the timeframe for returns or exchanges. For example, in California, if a retailer does not have a clearly posted return policy, the buyer may return the product for a full refund within 30 days of purchase.

If a receipt is lost, many U.S. retailers can track the purchase through credit card transaction logs or customer loyalty accounts, making it possible to process the return without a physical receipt.

In crafting a return policy that adheres to U.S. norms and legislation, it is important for businesses to balance legal compliance with customer convenience to foster trust and encourage repeat business.

Return of Goods Purchased Online

When purchasing goods online that are of satisfactory quality, there are specific rules for their return that can vary by retailer but typically follow certain guidelines and consumer protection laws in the U.S.

Cancellation of an order can be made:

- At any time before the goods have been delivered;
- Within a certain number of days after receipt, often ranging from 14 to 30 days, depending on the retailer's policy;
- If at the time of delivery the seller did not provide written notice of the return policy, the buyer might have an extended period to return the item. This period isn't fixed and would depend on the state law and the merchant's return policy.

Goods can be returned:

- Throughout the entire warranty period specified by the manufacturer or retailer.
- If the goods are seasonal, the warranty period may be calculated from the start of the season or as individually specified in the warranty documentation.
- Within two years from the date the goods were received if there is no warranty card provided or if the warranty period is not indicated on the product packaging.

The consumer may also request a return or replacement of goods with a warranty of less than two years, up to two years if defects were found after the warranty expired. However, in such cases, the consumer must demonstrate that the defects were present before the purchase or for reasons that arose before the item was sold.

For example, if a customer purchases a telescope with a six-month warranty and it malfunctions after nine months, a return is possible if it can be proven that the product was defective prior to sale.

Moreover, a quality product can be returned if there is documentary proof of the purchase. This can include a receipt, a warranty card with the store's stamp, a tag, a statement from the account showing the transfer of funds, and other documents. If the document is lost, the return can still be processed based on the proof of purchase, which can often be reconstructed from digital transaction records.

It should be noted that in the U.S., some retailers offer a “no questions asked” return policy, which allows customers to return items without providing a specific reason, but this is at the discretion of the retailer and is not mandated by law. Always, the specifics of a return will depend on the retailer's posted return policy and the laws of the state where the transaction occurs. It is the consumer’s responsibility to be aware of these terms at the time of purchase.

Instances When a Seller May Refuse a Return

Under the guidelines that govern consumer rights in distance selling, there are specific instances when an online retailer is justified in refusing a product return:

- If the buyer is not acting as a consumer—for instance, if the purchase is made as a gift or for the purpose of resale.
- If more than seven days have passed since the product was delivered to the customer.
- If the return policy was clearly communicated in writing at the time of delivery, and more than three months have elapsed since the purchase.
- If the product’s packaging has been damaged or the seals have been broken.
- If the product’s consumer properties have been compromised, such as a scratched smartphone screen or unreadable inscriptions on a laptop keyboard.
- If the goods were made to a custom specification for a particular customer, such as a laptop with non-standard features or sneakers with a unique design. These items may be non-returnable because it could be difficult to find another buyer for them.

Moreover, according to the law, the cost of returning the goods falls on the buyer, not the seller! If the seller arranges the return of the goods, they are entitled to deduct the corresponding amount from the money refunded to the customer.

Replacement Periods as Defined by Law

A seller is obliged to replace an item within seven days from the day a replacement request is made. If additional checks on the quality of the goods are needed, the replacement should occur within twenty days from the request.

- If the replacement item is not available at the time the request is made, the replacement must be completed within one month from the day of the request.
- If the replacement of the goods requires more than seven days, upon the consumer's request, the seller must provide a similar item for the consumer's temporary use during the replacement period at no cost, ensuring its delivery at the seller's expense.

In crafting this for an American audience, it’s important to note that while specifics can vary, the above captures the essence of the consumer protection ethos that is also present in U.S. return and warranty law. The expectations for returns and replacements, as well as the responsibilities of both buyer and seller, share similarities across different jurisdictions, reflecting a common goal of fair trade and consumer satisfaction.

How to Create Return Policy

Creating an effective return policy is critical, as 96% of customers would likely shop again with a retailer if they had an easy return experience. Here's how to construct a return policy with an emphasis on clarity and customer service, tailored to align with common practices in the U.S.:

Step 1: Formalize Your Policy

Craft a written return policy to standardize request handling and eliminate ad-hoc decision-making.

Step 2: Address Key Questions

Your policy should answer the following:

- Eligibility for Return or Exchange: Define which items can be returned or exchanged.

- Non-returnable/Non-exchangeable Items: Clearly identify items that cannot be returned or exchanged and explain why.

- Return Window: Specify the time frame within which items can be returned or exchanged.

- Condition of Returns: Describe the condition items must be in to qualify for return (e.g., lightly worn, new with tags, in original packaging, etc.).

- Return/Exchange Process: Provide clear instructions on how to initiate a return or exchange, including a contact email address or a webpage with a form to fill out.

Step 3: Include Additional Information

Expand your policy to include:

- Processing Time: Indicate the time it takes to process a return, exchange, or store credit.

- Return Shipping Costs: State who is responsible for return shipping costs. In the U.S., it's common for customers to pay for return shipping unless the item is defective or the wrong item was sent.

- Restocking Fees: Disclose any restocking or additional fees the customer is responsible for.

- Handling of Lost/Damaged Returns: Explain your process for returns that are lost or damaged during shipping.

- Customer Support: Provide contact information for further inquiries, such as customer service phone numbers or email addresses.

Step 4: Ensure Compliance

Ensure your policy complies with U.S. federal and state laws. For example, some states may require a minimum return period if the policy is not clearly disclosed before purchase. Always consult with a legal professional to ensure compliance with local laws and regulations.

Step 5: Make it Accessible

Display your return policy prominently on your website and at the point of sale. Transparency is key to building trust with customers.

Step 6: Review and Adapt

Regularly review your policy to ensure it meets customer needs and remains in line with your business model. Be willing to adapt your policy as your business grows or as you receive feedback from customers.

Step 7: Train Your Staff

Make sure all team members understand the return policy and are able to execute it consistently to ensure a smooth customer experience.

A well-crafted return policy not only sets clear expectations for your customers but also reflects your brand’s commitment to customer satisfaction. It’s an integral part of your service that can enhance customer loyalty and your company’s reputation.

Where to Put Return Policy

Having a well-crafted return policy is only part of the equation—you also need to ensure that your customers can easily find it before they make a purchase.

Incorporate links to your return policy in various locations throughout your e-commerce website to save time on customer correspondence for those who haven’t seen the policy.

Here are recommended spots to place links to your return policy:

- Website Footer: This is a common place for important links, as customers often look here for policies.

- FAQ Page: A natural spot for return policy information, making it part of the helpful resources.

- Product Pages: Directly inform customers where it's most relevant.

- Order Confirmation Emails: A timely reminder post-purchase can clarify any doubts.

- Website Chat Feature: Make it easily accessible during any live interactions.

For example, Chubbies Shorts includes their return policy in a chat window popup on their website, allowing customers to start the return process with just one click.
There's no point in burying your return policy in fine print—it only leads to distrust. A clearly stated policy sets the correct expectations and provides a sense of transactional security.

Strategies for Minimizing Losses from Returns

Returns are an inevitable part of retail that can threaten profitability. However, there are several ways to minimize losses.

1. Turn Returns into Exchanges

The difference between a return and an exchange is significant in terms of profitability. Returns involve additional expenses such as reverse shipping and restocking, not to mention the cost of acquiring a new customer and refunding the purchase price.

Exchanges typically entail a smaller loss. A common method to encourage exchanges over returns is to offer to cover the return shipping and the shipping of the new item if the customer opts for an exchange instead of a return. For high-margin products, even with the shipping costs, an exchange can maintain a positive transaction margin.

2. Incentivize the Customer to Stay and Reorder

If the customer is open to an exchange, offer a substantial bonus for their next purchase. This provides an incentive for the customer to agree to an exchange and make another purchase at the same store.

For instance, Chubbies offers an additional $10 on top of the refund if the customer agrees to use the returned funds for a new purchase in their store.
By adopting this approach, Chubbies ensures a positive customer experience and encourages more customers to opt for an exchange rather than a return.

3. Leverage Cross-Selling or Upselling at the Point of Exchange Request

The moment of return in e-commerce can be seized as an opportunity to suggest a product with more desirable features at the same or slightly higher price than the item being returned.

Such an offer may be well-received if you understand the reason for the exchange and can make a personalized recommendation for a pricier item that meets the specific needs that were not fulfilled by the initial purchase.

For instance, if a customer is returning a digital camera because it’s too heavy, you could recommend a lighter version that might be more expensive but addresses the issue encountered with the first order.

You could also present new items they did not purchase initially but that complement the item the customer is returning.
View each return as an opportunity to increase the order value by elevating the price point of the product or through cross-selling. This can help convert more returns into exchanges.

Maximizing the Benefits of a Return Policy

Regardless of the amount of effort you put into your product and customer service, as your business grows, you are bound to encounter a few dissatisfied customers. Handling such customers effectively is crucial to the resilience of your store.

Developing a clear return policy that is complemented by a well-thought-out system for returns and exchanges, and regularly optimizing it for efficiency, is a powerful way to cut costs and motivate customers to return and make another purchase or, even better, to share their positive experience with friends.

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