The longer the money back guarantee, the lower the return rate

So here is an interesting thought for those of you who want to try and decrease your return rate if you have products like money back guarantees.  (This isn’t 100% proven but just a theory and also does not count credit card fraud, etc…)  Instead of making it a 5 day or 7 day or even 2 week money back guarantee, why not offer a 30 or 45 day money back guarantee.  You may also want to look even further into the future and give your customers a 90 day money back guarantee.

Now, I am not talking about clothing or small products, but larger purchases (actually you may want to include clothing and try to give that a shot too) like furniture, mattresses and even hot tubs or household appliances like ovens and fridges.

The theory behind expanding the in home money back guarantee is that it not only adds and builds the confidence in your consumer that you believe in your products and services as well as the confidence that they are not going to be locked into a large purchase with no way out if it doesn’t work like they wanted, but you also let them think that they have a lot more time to try your products out in their own homes without the risk of being stuck with it.

Because they get to try it out longer, you can promote the money back guarantee as a way to really get to see how it makes your life better or easier and also let them get seriously accustomed to it so they start to not want to live without it.  If the person does fall in love with it and keep it, good you made the sale.  If they are iffy on it, you are letting them give it a longer test run and if you believe in your product you don’t have much to worry about and they may be more inclined to answer a survey, respond back to you for testimonials and you can really get an honest gauge for how well your products perform or how well they work and how often people use them over the time period.  If they do end up returning their purchase still, at least you will know what issues to address in your Marketing copy and what changes and adjustments to make for the next series of products or upgrades for the products.

Now, here is the real kicker that I have heard from a lot of Merchants that offer extended and long term Money Back guarantees that made me write this article, except I also add my own thoughts to the theory…I’m actually at an airport stuck on a delay without my contacts in so that is why the writing and punctuation is bad, sorry ahead of time.

When they offer these long life money back guarantees, the end user or consumer who bought the product no longer feels a sense of urgency to need to keep or get rid of it.  They relax a bit more and possibly forget about how long they have left to return their purchase if they don’t want it.  They may not only push it back to the bottom of their list of things to do, but they may forget about it completely until it is too late and that is what the different online Merchants I have spoken to have all agreed on.

When they have given a longer money back guarantee, people forget about the date they have to return the product by and then end up keeping the product because it was their own fault that they didn’t remember to return it.  They constantly think they still have another month or two and don’t realize how fast time snuck up on you.  This is a very sneaky practice, but at the same time, as long as they knew they had a certain date that they had to return their purchase to you by, it is their own fault and you should not think less of the Merchant.  They did technically give a much longer trial period and if the consumer doesn’t remember to return and the Merchant does live up to their promises if it is returned on time, then the consumer is the one at fault and not the Merchant who let them try their products in their own homes.

Now, here is what makes the difference between a company whose customers love them and become loyal and ones that don’t care and only stay in business because they are huge name brands.

When the customer calls in because they missed the return date, if there is no other resolution like half of their money back or giving them a free credit for an upgrade, etc… you may want to still accept their return, even though it is past the date that they had to return it by.  This not only lets them know you care about them, but reinforces their trust in you so that when they are ready to shop again, they may choose you again too.  Now, you also have to be careful of these people too because some of them just always buy on the money back and then always return as well so be careful who you do this with and see if it is someone who has shopped and kept their products before and also look at their returns and reversals history if you can.  You may also want to check out their zip code and look at the median income for that zip code to see if they legitimately are in your target audience as well as demographic and then make your decision on if it is worth crediting them and accepting the return or making them keep the product because they missed their return date deadline.  Not only if they are in your target demographic have you developed a potentially stronger loyal customer, but they may mention you to their neighbors who are financially and geographically in the same demographic as them and also potentially fall into your target customer base as well.  Word of Mouth recommendations are powerful so don’t ever underestimate them.

Giving good customer service is key in business and can get people to spend even more money and come back again and again.  If you have someone who legitimately missed the deadline and you can see them being a good future customer, take the hit and accept their return, but also remember to always remarket your products or other products to them again in the future so you can make up the loss and grow your revenue.

Extending out money back guarantees seems to really help decrease your return rates, but at the same time it can also backfire on you if everyone actually does return your products because they end up not working the way they thought they would.  Before you try using this method to decrease returns on large purchases, think about it carefully and run a test to be a bit more certain that it will work for your business model as well.  Try testing it for a quarter then pull the offer, or run it for a month and back it with commercials on TV or in other Media to get more people to bite at it and see if it works or not.

Run a Spring and Summer specials in March and in June to see if those months have lower returns compared to April and July.  Then try it again in October and see how many were returned in the following 60 or 90 days when people are busy with their holiday shopping.  Either way, I would definitely recommend at least giving it a test (as long as you control the test so you don’t get screwed or loose a ton of money) because you may find out that you are missing out on a ton of revenue and man hours dealing with high return rates.

If you have had any experience with this and want to share it, please feel free to leave a comment and a case study below in the comments section.

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