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How crucial are returns policies to CRM?

Frank Rumbauskas
Entrepreneur, author and speaker
Owner of mortgage protection life insur­ance agency 

As a veteran marketer and online retailer, I’ve found there’s a fine line between offering generous return poli­cies and being abused by customers now that refund and chargeback fraud abuse is on the rise.

When I offered a no-questions-asked return policy for my books, CDs and DVDs, I experienced a ton of people who ordered the materials, immediately copied them, and then sent them back. In many cases the tracking numbers showed as little as 2-3 hours between the time the materials were delivered and then shipped back to us, and customers frequently tried to re-apply the shrink wrap to create the appearance that the product was unopened and not copied.

On the flip side, not offering a money-back guarantee or return policy will kill sales. The increased sales from a good return policy will more than offset the losses from dishonest customers.

What works best for me is offering products on a 30-day trial, meaning customers have 30 days to either keep the merchandise and be automatically charged for it, or to send it back before 30 days and never be charged. Abuse naturally rose sharply but sales far out­pace the abuse — my return rate went from 1% to about 10%, but sales tripled making the return rate completely insignificant.

In addition, because customers have only 30 days to decide, it’s a “now or never” decision that solved the problem of someone returning a product six months later because they needed the money for other uses, while simultane­ously giving much more value and risk-reversal than any of my competitors.

Ernan Roman
Founder and prin­cipal, Ernan Roman Direct Marketing
Author and regular guest on ABC TV

Who in the world would argue against a strong return policy? It should be central to a company’s marketing plan, particularly when the product has added value for the consumer and is a planned or researched purchase.

When a customer has to return a product, the brand is displaying how customer-friendly it is. This is where the rubber hits the road. How much does your company take the customer experience into account? In today’s market, the customer is expecting to be mistreated. A return policy answers the question, “how good is a company at giving money back to a customer?”

We find over and over again that the post-sale experience for products is a make-or-break element in terms of re­peat purchases. Brands that build expec­tations have a responsibility to maintain that expectation of good service.

This is particularly the case in today’s multichannel market. Direct marketers using mail, catalog and Web face the challenge of being “distant” retailers. A strong returns policy and building an added layer of insurance to the buying experience that one can see and touch.

However, there are those who might argue that no-questions-asked policies might run the risk of consumer abuse. I suggest monitoring the use of your returns policy and auditing it regularly. A returns policy should not be a blank check, but not having one could be more devastating than losing money through fraudulent claims.

If a company is smart enough to deliver customer service, it is not only retaining the customer, it also gains advocates and ambassadors.

The Decision

Rumbauskas offers a by-the-numbers case study that may work for him, but his argument doesn’t take into account customer equity. Roman gets at the heart of good CRM when he says that a company is not only gaining a sale but also potential word-of-mouth advocates. His argument is well-received in the current climate, where shoppers complain loudly and publicly about strict return policies.

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