How Refund Policies Encourage Spending (and Reduce Returning )

“Forget sale price. Everything is 100% off when you don’t buy it.” — Joshua Fields Millburn

I have a friend. Let’s call him Jim. Jim has an interesting shopping habit—from time to time, he will buy something at the store and bring it home with a thought in the back of his mind, “If this doesn’t work, I’ll just return it to the store.”

The thinking is simple and, on the surface, appears to make perfect sense: Because the store has a return policy, this purchase has no risk. If it doesn’t fit or match or work for any reason, I can return it to the store. It’s an easy choice… and a perfect win-win situation for me.

Jim’s thinking is not unique. In fact, we all have friends who act like Jim. And, if we are honest with ourselves, most of us are guilty of similar thinking. My fictional friend, Jim, represents all of us—or, at least, Jim represents the 91% of us who say a store’s refund policy is factored in their purchasing decision.

There is, of course, fallacy to this thinking. It is not entirely a win-win situation for the consumer. Jim is not considering the time, energy, and gas needed to return the item if so decided. And he is not considering that returning this item will require him to re-enter the very store that persuaded him to buy something he didn’t need in the first place.

In fact, when you do a little research on the matter, you will discover that refund policies are not a win-win situation for the consumer… just the opposite, they are win-win situations for the seller.

It shouldn’t surprise us that a store or brand would implement specific strategies to get us to part with our money—that is their job after all.

On a macro-level, society pulls us towards consumeristic pursuits. And on a micro-level, sellers utilize strategies to convince us to consume in the specific ways that benefit them most. In my new book, The More of Less, I outline many of the specific tactics that retail stores use to convince us to buy more than we need.

Return policies are certainly one of them. I think it is important for us to be reminded that these policies are established to help, primarily, the store make money.

The prevailing question retailers ask when establishing their refund policy is “What policy results in the greatest profit for our business?” Source: Entrepreneur, The Wall Street Journal, TIME, The New York Times, and the list continues.

But this was never more evident than in an article published this week in the Washington Post titled, “The Surprising Psychology of Shoppers and Return Policies.” The piece outlines a study conducted by the University of Texas-Dallas that seeks to get a “better handle on how return policies affect shopper behavior.”

The results are interesting and important for us (as consumers) to consider. Here is a summary:

When it comes to purchasing, a lenient return policy results in an increase in initial purchases. The length of time allowed to return an item, the reimbursement percentage, the requirements for the return (necessary receipts, for example), the scope, and the specific exchange (store credit vs. money) were all factors considered important by a consumer. We consciously and subconsciously consider each of them when deciding whether to make a purchase or not. As would be expected, the more lenient the policy, the more likely a customer will walk out of the store with an item in hand.

But what is most fascinating about the study is not that it confirms what we know to be true, but that it shines a light on unexpected tendencies when it comes to returning items.

The researchers discovered something unexpected about consumers’ return habits: “More leniency on time limits is associated with a reduction—not an increase—in returns.” 

In other words, the longer a time frame allowed to return an item for full refund, the less likely consumers were to return the item in question. The very characteristic that makes the return policy appear to be a major-win for the consumer is actually a major-win for the seller.

How could this be? Wouldn’t the opposite be true? Apparently not.

The more time a shopper is allowed to keep an item before returning it, the more likely they are to just keep the item.

The researchers attempt to explain their finding in a number of ways: the longer a customer has a product in their hands, the more attached they feel to it, the long time frame creates less urgency to take back the item, and the longer consumers hold on to an item, the more likely they are to find a use for it.

What appears to be a win for the consumer is actually a win for the store.

Can refund policies by useful to the consumer? Absolutely, we’ve all found benefit in them at one point or another.

However, are these return policies implemented entirely for the sake of the customer? Absolutely not. They are designed to result in higher sales and lower returns for the stores that implement them.

The very perk that Jim believes is designed to benefit him is actually designed to benefit the store that now has his money.

from Becoming Minimalist http://ift.tt/1KbiJTA