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Return Policy Makeover: How Best Buy, Sephora, Zappos Transform A Common Transaction

­­­­­­­­­­­­­­­­­Research shows easy return policies lead to more purchases, but also to other surprising shopper behaviors. Instead of lenient return policies, retailers can establish approaches that include the many features of their brand experience, from online shipping options to loyalty programs.


 

The logic of it makes perfect sense; it is, in fact, a lot like dating. If I have the option to test or experience something before committing to it, then I am more likely to take a chance on it.

Photo credit: Best Buy

Photo credit: Best Buy

I speak here, however, of shoes and electronics, not of potential spouses. Return policies are to shoppers what the Dating Game is to finding love, complete with an element of romance. Sure, you might find that those yellow boots are not so flattering, or that you cannot afford that tablet. Fortunately, the retailer usually understands and gives the shopper the option to return them – within certain guidelines.

These guidelines also form the key findings of a study performed by researchers at the University of Texas at Dallas. Essentially, they found that more lenient return policies (like dating more) result in increased purchases, but they also lead to more returns.

This is not all the study revealed, however. It also showed that specific features of the policy, such as if it has a long deadline, could reduce chances of returns. Put another way, the method to shaping a consumer’s brand relationship via a return policy may have more to do with the policy’s nuances than its absolute leniency. Instead of relying on easygoing guidelines, retailers could better benefit from policies that incorporate the features of their specific brand experiences, from online shipping options to loyalty programs.

As one of the research authors, Ryan Freling, put it: “You want to look at the different dimensions of a return policy, because you may be able to manipulate the policy to achieve your goals.”

1 in 10 Buy, 1 in 10 Return

For many consumers, however, shopping can be less like the Dating Game and more like Tinder.

Nearly 90 percent of shoppers leave stores empty-handed because they could not find what they want, according to a study of 1,000 consumers by TimeTrade, a customer experience service provider. Retailers fill their stores with beautiful displays, music, trained associates and, often, deep-discount signs in order to transform that necklace from a passing fancy to a purchase.

Many of those purchases work out well, but not all, and the costs can be exacting. One-third of online purchases are returned – that’s billions of dollars in unwanted buys – according to Kurt Salmon. Of in-store purchases, 8 to 9 percent are brought back, largely because the retailer has created a merchandising environment that encourages incremental sales.

In short, all of that merchandising romance has caused the retailer to wake up with a very unwelcome problem.

Complicating matters is just how crucial a role return policies now play in the overall retail experience: 59 percent of shoppers said return policies make or break their opinions of retailers during the crucial holiday season, according to research by LoyaltyOne.

From Returns To Key-Turns

The challenge for retailers, then, is maintaining the romance of the shopping trip while tempering its influence on unsuitable choices.

Return policies need to be part of the retail experience; they have become as essential a factor in building a loyal customer as product quality and reliable service. To optimize that policy to the benefit of both the shopper and the merchant, retailers can rely in part on their loyalty programs. Below, I list four ways they can do this, which we can call turning points:

Turn time into money: The University of Texas study found that given a longer return deadline, consumers are less likely to bring purchases back because they become more attached to them. Retailers can capitalize on this “endowment effect” by offering their loyalty members, as a featured perk, additional time to return their purchases. Best Buy, for example, gives its My Best Buy Elite Plus members an additional 15 days to return items – 45 days compared with 30 days for its Elite members

Turn down the fee: Many online merchants, such as Zappos.com, famously offer free returns on purchases. Some traditional retailers including Macy’s and Nordstrom, which have tested same-day delivery, could essentially do the same if the service paid off. If free online returns were a benefit of a rewards program, the customer would more likely feel she is getting special service in return for her membership, and this could encourage more freedom in spending.

Turn it into a learning opportunity: When consumers return purchases, they present retailers with the opportunity to know more about them. In addition to refunding money, the retailer can ask the consumer to take a few minutes to fill out a short online survey that explains the reason for the return, while including one or two key questions that help the retailer understand why the consumer made the purchase to begin with.

Turn the process on its ear: Whether the consumer makes a purchase or not, the goal for all parties involved should be that she leaves the store feeling happy. Rather than focusing on making a sale, retailers can use their data to ensure it is the right sale. Sephora’s Beauty Insider program, for example, gives members plenty of free samples, a practice that enables more educated product commitments.

The right return policy could represent the beginning of many beautiful relationships. But even if not, it beats having the customer leave the store empty-handed or bring home an unwanted conquest.

This article originally appeared on Forbes.com, where Bryan serves as a retail contributor. You can view the original story here.

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