The dangers of offering only instant refunds to customers
Carly Greenberg
·February 23, 2024
Smart retailers know there’s nothing more important than keeping the customer happy.
That starts with delivering a consistent, personalised brand experience through the entire buying process, with immediate access to customer support and resources when needed.
It continues through the post-purchase experience, with automated status updates and live tracking when a parcel is en route.
And in the event that the customer isn’t happy with their purchase, your brand should be on top of offering solutions to make it right.
For many retailers, offering an instant refund when a customer requests a return is a key part of the post-purchase experience.
But by defaulting to instant refunds, you might be ignoring other strategies that could help you retain more revenue while still providing a great customer experience.
In this article, we’ll look at:
- What is an instant refund?
- What are the benefits of offering instant refunds?
- What alternative post-purchase solutions should merchants consider?
- How a returns management solution can help you optimise your post-purchase flow
What is an instant refund?
An instant refund refers to the process of immediately refunding the customer’s payment back to their original payment method, such as a debit card or credit card, as soon as they have requested a return — without even waiting to receive the item back to your warehouse.
With a traditional refund process, a retailer would wait until they had received the returned item back to their warehouse to process the buyer’s refund — a process that might take a week or longer.
By offering instant refunds, retailers are able to improve customer satisfaction metrics by ensuring that the customer receives their money within moments of making the request. In processing an instant refund, retailers can reserve the right to re-charge the customer for the order if the item is not received within a set period of time, or is not in the condition expected.
What are the benefits of offering instant refunds?
Offering your customers instant refunds can help them feel more confident in your return process — encouraging them to purchase from your brand more frequently.
In fact, a 2023 study from the UK-based fintech company Tink found that nearly a third of UK customers are spending less online because they’re concerned that they won’t get a refund in a timely manner if they choose to return a product. And 52% of customers said that they’re not likely to shop with a particular retailer again if it takes too long to process a refund.
On the flip side, a 2023 study from TodayPay found that 92% of US customers would complete checkout, rather than abandoning a cart, if they knew a refund was guaranteed if they didn’t want to keep the product — and 79% would increase order value if a refund was certain.
Customers want a clear, straightforward, refund process — and they want it fast. TodayPay also found that 91% of customers want a choice in how their refunds are processed, and 51% want their refunds on the day of request.
By adding instant refunds to your return options, you’ll be able to instill customer confidence, leading to a higher order volume and value — and customers who take advantage of the instant refund process will retain a positive impression of your brand.
But by defaulting to instant refunds, you may be leaving money on the table. Customers who receive instant refunds may have a positive experience, but they have little motivation to purchase from your brand again, so your customer loyalty metrics may take a hit.
And customers who receive instant refunds may take their time in sending back your item as they have no incentive to deliver it quickly — impacting your ability to get the item back into inventory for quick resale.
Let’s look at other strategies retailers can use to boost customer satisfaction during the returns process.
What alternative post-purchase solutions should merchants consider?
Ecommerce retailers can consider a range of options during the post-purchase process, and the right choice will vary based on your brand’s unique characteristics.
These options can include:
Almost-instant refunds
Your company can hedge against risk and ensure that the customer returns the item in a timely manner by waiting to process the refund until the parcel is scanned by a carrier, either during home pickup or drop off at a drop-off centre. The customer will still get their refund quickly, but the onus is on them to ensure a speedy parcel return, so you’ll be able to resell the item quickly.
Returnless refunds
Returnless refunds are another form of instant refund, but in this case, the customer won’t even be required to send back the item. This type of policy is best for items with little to no resale value, helping your brand avoid the expense of reverse logistics and the contribution to landfill waste. By encouraging the customer to keep the item while providing them with a full refund, you can build goodwill with your customer and encourage them to pass on the item to a friend or sustainably dispose of the product.
Instant exchanges
Before encouraging a refund, find out why the customer is returning the product. Was it a miss all around, or was it just the wrong size or colour? If the customer simply wants a variant of the item, offering an instant exchange provides a seamless opportunity to retain revenue from the transaction while ensuring the customer gets what they want. Much like an instant refund, you can ship the new product out before the customer has sent the original item back, ensuring that they can resolve their issue swiftly.
Instant store credit
Rather than providing a refund directly to the customer’s payment method, consider offering the customer instant access to store credit. By embracing this model, you can encourage the customer to take another look at your products and find something they like better, helping to boost customer loyalty. While you can also offer your customers the option of an instant refund, by promoting an offer for bonus store credit above their original purchase price, you can encourage more shoppers to choose an exchange or another item from your store.
How a returns management solution can help you optimise your post-purchase flow
By using Loop to manage your post-purchase flow and refund process, you’ll be able to offer a variety of customised options to keep your customers happy — while improving your bottom line.
With Loop, you can easily offer an instant refund, if that’s what your customer wants.
But you can also provide them with curated options based on their return reasons: If a customer returned a pair of shoes that was the wrong size, you can offer an Instant Exchange to ensure that they get the right fit.
Or, if they didn’t like the style at all, provide them with access to Bonus Credit that they can apply towards any product in your store, giving them the opportunity to take a second look at your inventory to find a product they like better — helping you hold onto the revenue from the original transaction, and preserve customer loyalty.
Loop also uses conditional logic to identify the most cost-effective return strategy for each product, whether that means offering a returnless refund, sending the item back to the warehouse, or routing the item for third-party resale or recycling. By optimising your reverse logistics flow, you’ll be able to lower operational costs while improving your company’s commitment to sustainability.
Instant refunds are a great option to boost customer satisfaction, but by offering a customised range of return solutions, you’ll be able to find the right solution for every customer and improve your profit margins in the process.
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With Loop, your brand can offer everything from refunds to direct exchanges to shopper incentives and more. Even better? These exchanges build your business.