Returns and exchanges are the necessary evils of e-commerce, and no matter the amount of sweat and tears you put into perfecting your product descriptions, attaching precise product images, or streamlining your shopping journey, your customers will return items.
Research finds that the average e-commerce return rate is between 20-30% across industries. Further, a staggering 50%+ customers say an e-commerce business’s return and exchange policies play a significant role in their purchase decisions.
In this article, we’ll explore the difference between returns and exchanges, their benefits and shortcomings, and how you can use them to get ahead—because if done right, these headaches can turn into opportunities to drive customer satisfaction and repeat purchases.
What are Returns?
Returns involve a customer giving a product back to you and getting their money back . In simple words, if your customer receives the order and wishes to return it, they can send it back to you and get the money they paid for it back. The convenience and security offered by returns and refunds mean they are often the first solution customers turn to when dealing with returns.
As an e-commerce business, it is crucial to have a well-crafted return and refund policy with clearly defined restrictions. This policy makes it easier for your customers to feel at ease knowing they can trust your platform should things go south.
Benefits of Returns
Returns can help your business improve its reputation and customer service experience. Here are some benefits of refunds:
1. Build trust with your Customers
As a customer, buying something online without truly knowing what it would turn out like can be scary. What if the size is too big, or the color turns out terrible? A well-defined, easily accessible policy on your app or website creates a sense of security for your buyers. They’re more likely to trust your brand, knowing the return process will be straightforward, should they need to go down that route.
2. Drives Revenue
Surprisingly, a good return and refund policy could be a significant selling point for your business. A survey found that 49% of customers check a store’s refund policy before buying anything. This means there’s a good chance that displaying your policy could increase your sales.
3. Prevents Future/ Legal Issues
No matter how valuable or high-quality your product is, someone somewhere will want a return or refund. Some jurisdictions also have consumer protection laws in place that necessitate refunds. Not offering one could make you vulnerable to lawsuits. A clear-cut policy gives you something to fall back on and gives customers well-defined guidelines—saving time, confusion, and the chaos of making it up as you go.
Despite its numerous advantages, refunds can also be a direct route to lost revenue, negatively impacting your bottom line. Further, customers returning products might not return if they have a negative experience with the product or the return process, leading to long-term revenue loss as well. This is where product exchanges come in.
What are Exchanges
Exchanges involve customers giving back an item they have purchased and taking another in its place. In other words, a customer returns the order they placed to receive another order in lieu.
For instance, customers might request an exchange to replace an ill-informed birthday gift or a shirt a few sizes too big. The item they exchange it for could be identical to the item they already purchased or be different in size or color, or entirely new.
Just like refunds, exchanges are crucial to your e-commerce business’s sales process. A well-made exchange policy can facilitate a positive customer experience and make it easier for your employees to handle the process.
Further, your exchange policy must be easily accessible on your website, not buried five clicks deep. This helps facilitate transparency and drives customer trust.
Benefits of Exchanges
Exchanges are essential for any e-commerce business. Some benefits they bring to the table include:
1. Drives Customer Trust
Clear-cut, straightforward, and concise exchange policies help foster trust with customers. When customers know they can exchange an unsatisfying item, they are more likely to take the leap of faith and purchase from your e-commerce store.
2. All-around wins
Unlike refunds, exchanges usually benefit both the business and the customer. exchanges allow online businesses to retain the revenue from their sale while ensuring the customer has received a product that they are happy with. They also present an opportunity for upselling since the customer may exchange the item for one with a bigger price tag.
3. Enhance Brand Reputation
A firm exchange policy can work wonders for your company’s reputation by boosting customer satisfaction and trust. This is because when your customer knows they have the option to exchange a product, they are more confident in their decision to purchase from your online business. It also signals that your e-commerce business stands behind its products and values as well as prioritizes customer satisfaction. This encourages repeat purchases and improves brand loyalty over time.
Advantages and Disadvantages of Exchanges
Just like a refund policy, exchange policies also have pros and cons. Here’s a look at these:
Advantages
Exchanges, in contrast to refunds, are much better for your company’s revenue and bottom line. They benefit you and your customers, all while enhancing your brand image and building customer trust. Exchanges also help you communicate how much you value customer service and satisfaction.
Disadvantages
Exchanges require you to always have inventory on hand for customers to choose from. If you don’t, you might have to issue a refund instead. Further, exchanges require e-commerce businesses to collect the returned item and ship a replacement—an exercise that is both time-consuming and expensive.
Key Differences Between Returns and Exchanges
Refunds and exchanges are both critical for customer satisfaction. However, there are some notable differences between them. These include:
| Returns | Exchanges |
|---|---|
It involves a customer returning an item in exchange for their money back. | It refers to a customer returning an item they bought in exchange for another. |
This can lead to losses in revenue. | Exchanges allow e-commerce businesses to retain their revenue since they can offer customers an alternate product. |
The e-commerce business gets the shorter end of the stick since it loses out on revenue. | It is a win-win situation for both the customer and the business. |
Returns provide more security to customers since customers know they can get their money back. | Compared to refunds, exchanges provide less security to customers since customers are restricted to purchasing another item from the same e-commerce store. |
Once customers have received their refund, they are less engaged with your brand. They may also be dissatisfied with their service, making them less likely to buy from your business again. | Customers are still engaged with your brand and, therefore, more likely to buy from you again. |
Scenarios for Choosing Returns vs. Exchanges
A return and exchange policy both come in handy in different situations. Let’s take a look at when to offer what:
When to Offer Returns
Some situations when you can offer returns include:
- When the item the customer purchased is faulty
- When the customer has signed up for a service which cannot be substituted with another service or product
- Cases where replacing the item is more expensive than offering a refund
When to Offer Exchanges
Some situations in which an exchange is a good idea include:
- When refunding the item will be more costly
- When the item has minor fixable issues (such as sizing or coloring matters)
- When the customer is looking for different features or products your platform provides
Retailer Policies on Returns and Exchanges
Setting clear expectations can help customers understand your store’s policies upfront. This means you receive fewer complaints and confrontations, allowing for more manageable returns and exchange processes.
Some elements of a winning returns and exchange policy include:
Include a Clear Time Limit
A good returns and exchange policy clearly specifies the window within which customers can initiate a return or an exchange. For example, “The item must be returned within 15 days of purchase,” or “The item must be exchanged within 30 days of purchase.
Include Options for Returns and Refunds
You should also include clear policies regarding who will bear the cost of the return. Additionally, available options must be clearly outlined if customers want a refund. Some stores offer only store credit, some provide full cash refunds, while others only allow the item to be exchanged. For example, “If you want to return an item, there will be a fee for ‘X’ amount for pick up,” or “Items can only be exchanged for store credit,” and “The item can only be exchanged with a product of the same value.”
Outline What Condition the Item Must Be In
Another aspect that should be included in your policy is the condition in which you want your products returned. It’s important not to accept items that have been damaged or deteriorated and then returned since this can lead to losses. Include clearly stated policies like ”The item must not be opened, used, or damaged,” “The item can only be returned with the original receipt,” or “Some items, like jewellery, perfume, and cosmetics, are not eligible for exchange.”
Wrapping up
We don’t mean to be dramatic, but a good return and exchange policy could make or break your company’s customer experience. Even if they’re initially upset or unhappy with your product, they will be pleased with the service they receive and, in turn, will be more likely to associate with your e-commerce business again.
However, facilitating a streamlined, hassle-free return and exchange process can be complicated. Consider turning to LateShipment.com to automate the process with our Returns Experience Management software.
We offer automated return status updates, branded return tracking, flexible routing rules, a centralized returns management dashboard, and more. Further, our platform easily integrates with your existing tech stacks without requiring a complete overhaul.
