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Revising return policies may bump sales but not profits

In his latest Behind the Gavel column, Wayne Jordan illustrates how cooperating with eBay’s liberal refund policies may increase sales — but not necessarily profits.

A visitor to an online forum recently sought help from forum members regarding a problem he was having with an eBay seller. It seems the visitor had purchased a “working” used game system, but when it arrived none of the accompanying cords fit the unit and he was unable to use it. The seller’s

Return image

Courtesy LinkedIn.

Terms and Conditions stated that as an estate liquidator all items were sold “as-is”; returns were not accepted and refunds were not given. The buyer felt helpless and was distraught that “nothing could be done” to remedy his situation. On the contrary: Quite a bit can be done, and forum members were quick to point out that the buyer should contact eBay and seek redress through their money back guarantee program [].

In general, eBay’s money back guarantee program (which has been in place for several years) isn’t very popular with sellers. Some sellers go to great lengths to spell out the conditions under which they will accept returns and offer refunds. Some sellers choose to sell under eBay’s “No Returns Accepted” option, and emphasize the “no returns accepted under any circumstances” policy in their auction terms. When that’s the case, if a buyer purchases an item for which no returns are accepted, there is nothing anyone can do to get that seller to accept a return. But that doesn’t mean that the buyer can’t get a refund. You see, sellers, eBay doesn’t care if you take an item back or not. If they determine that the item you sold was not as described, or arrived damaged, or didn’t arrive at all (according to the customer), then your buyer is going to get his money back if he asks for it. Whether you take the item back or not is beside the point.

It astounds me that some eBay sellers continue to moan and groan about the money back guarantee (MBG) and fight unnecessary battles over returns and refunds with their customers. A seller’s terms and conditions will always be trumped by eBay’s policies. It doesn’t matter that eBay sellers are independent agents who can (ostensibly) set their own terms of sale. It doesn’t matter that terms offered and terms accepted (through making a purchase) constitute a legal contract in most states. The rules that apply to an eBay transaction are eBay rules, PayPal rules, credit card merchant agreement rules and state laws relating to online transactions. When a seller signs up to sell on eBay, he/ she agrees to abide by eBay’s terms. Anyone who doesn’t like that is free to leave eBay and sell elsewhere. The lesson for eBay sellers? Simplify your business by aligning your Terms and Conditions with eBay policies. To do otherwise is a waste of time. But in doing so, you can turn this “lemon” (MBG) into lemonade and use it to boost sales.

It’s been well established that liberal return and refund policies have a positive impact on online sales. A 2009 study at Northwestern University’s Kellogg School of Management established that for some products (those with a typically high return ratio, like women’s shoes) a liberal return-refund option may increase sales by as much as 50 percent []. In a 2008 survey conducted by Forrester Research titled “Crafting a Returns Policy that Creates a Competitive Advantage Online” [] respondents demonstrated that:
• 81 percent agreed with the statement, “If an online retailer makes it easier for me to return a product, I am more likely to buy from that retailer.”
• 81 percent agreed with the statement, “I am more loyal to retailers that have generous return policies (e.g. free return shipping, ability to return any time for any reason).”
• 73 percent agreed with the statement, “I am less likely to buy in the future from an online retailer where the returns process is a hassle.” Most eBay sellers who accept returns align with the eBay policy that “return shipping is paid by the buyer.”

Let me throw some gasoline on the “returns” fire by suggesting that online sellers pay return shipping

One result of Forrester survey and study

One result of Forrester survey and study

as well, instead of requiring that buyers pay it. Why? Because in many cases (in which the buyer must pay return shipping), the buyer will claim that an item was “not as described” just to get out of paying the return shipping. Sellers will get “dinged” (defect marks) from eBay for delivering an item that was not as described, and risk negative feedback from buyers when that is the case. Since feedback (for better or worse) drives the eBay “trust” factor, why risk negative feedback and eBay defects for so few customers? Defects and negative feedback can cause the loss of search placement benefits and lead to having selling limits placed on a seller’s account. As with a liberal return policy, sellers who pay for customer returns may also enjoy an increase in sales.

A 2012 paper by professor Amanda Bowers at Washington & Lee University confirms that “customers who paid for their own return decreased their post-return spending at that retailer 75-100 percent by the end of two years. In contrast, returns that were free to the consumer resulted in post-return customer spending that was 158-457 percent of pre-return spending. The findings suggest that online retailers should either institute a policy of free product returns or, at a minimum, examine their customer data to determine their customers’ responses to fee returns” []. Clearly, a liberal return-refund policy will increase sales. But, will it increase profits? Not necessarily.

The financial consequences of accepting returns and issuing refunds extend way beyond the original sale and can erode overall profitability. Plus, stories of online buyer fraud and abuse are widespread. When fraud is added to legitimate returns, costs can get quite high for a retailer. The Retail Equation recently republished a 2005 paper by Texas A&M’s Speights and Hilinski titled “Fighting Return Fraud During the Holiday Season” []. The solutions suggested by Speights and Hilinski are directed primarily toward bricks-and-mortar retailers, but the financial analysis applies to online retailers as well. The salient point for online sellers is to make sure that you’ve analyzed the potential impact of “liberalizing” your return policy before you publish a new one. With the holiday selling season upon us, antique and vintage dealers of all types should examine their return policies and the effect that returns may have on their bottom line.

Wayne Jordan's "The Business of Antiques: How to Succeed in the Antiques World" is an invaluable compilation of real-world experience.
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