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6 brilliant ideas to turn refunds into exchanges

Versha Kamwal
September 19, 2021
7
mins read

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Ecommerce returns are an inevitable part of an ecommerce business. Nearly 30% of all products ordered online are returned as compared to 8.89% in brick-and-mortar stores.

You can make every effort to minimise the return rate, but some returns are bounds to happen. Though, you can still manage returns effectively and repacture the lost revenue by persuading customers to buy something else through easy exchanges!

In this blog, you’ll learn why an exchange is more valuable than a refund, and how ecommerce brands can turn ecommerce refunds into exchanges.

Why are exchanges more valuable than refunds?

Refund vs Exchange

After the order is delivered, if customers want to return a product and intend to seek a full refund of the price they paid while placing an order is known as a refund. Whereas, if customers want to return a product after the order delivery and intend to order a different product instead of getting the money back is known as an exchange.

The implication on profitability

When customers initiate a return for a refund, you lose a sale and the revenue gained from that sale. On top of that, you incur additional costs, such as the cost of return shipping, the cost of conducting quality checks, the cost of refurbishment, and the cost of restocking.

When customers initiate a return for exchange (usually a gift card or a replacement product of equal value), you don't lose out on a sale or the revenue gained from that sale. However, you still incur additional costs. This means exchange is often less detrimental—offering a replacement product instead of a full refund can help to keep a positive cash flow.

Effect on customer experience

If customers want a refund, they are communicating that the product did not meet their expectations.

In contrast, an exchange means that the customers were satisfied with the quality of the product and the buying experience, but chose the wrong item.

Impact on customer loyalty

When customers choose an exchange over a refund, your ecommerce brand retains revenue since they didn’t request their money back. With this, you are building brand loyalty by putting the right product in the customer’s hands and driving repeat purchases. Thus, increasing your customer lifetime value (CLTV).

In nutshell,

Exchanges = customers want to continue their relationship with your brand

Refunds = customers want to end their relationship with your brand

Now, you know how refunds pose a bigger threat to your ecommerce business against the relationship between and your customers. Let’s see how to turn refunds into exchanges.

How ecommerce brands can turn refunds into exchanges?

Exchanges have a significant impact on customer loyalty and profitability. Here are some clever ideas that can help ecommerce brands to drive exchanges instead of refunds:

1. Seek reasons for return and treat them as insights

The first step to persuade customers to choose exchange over return is to understand why customers are returning their orders. By posing the right questions on the returns form, you can collect data. You can then use these insights to deep drive into the reasons for returns and help you minimise the return rate. Most importantly, you'll have a better idea of the needs and wants of the customers and enable you to make better suggestions for an exchange.

Marks & Spencer asks for reason for return
Marks & Spencer asks for reason for return

2. Make alternative suggestions

Once you understand the reason behind the return, suggest alternative products for your customers. Perhaps they would like a different style, colour or size of the same product, or there might be a product that suits them the best.

For instance, when your customers want a different colour, size, or style, give them sufficient suggestions to help them find the right replacement.

Outdoor voices provides easy exchanges
Outdoor voices provides easy exchanges

3. Offer free shipping on exchanges

Ecommerce brands often choose one of the two ways when it comes to shipping on returns

  1. They charge for returns shipping as an attempt to minimise returns because they see returns as a cost aggregator
  2. They offer free returns shipping as an attempt to provide hassle-free returns because they see returns as an opportunity to enhance customer experience and drive repeated purchases

Here, you can take a combined approach. You can offer free shipping only for exchanges and charge a small shipping fee for refunds. This will encourage customers to choose an exchange instead of a refund.

Free shipping on exchanges
Free shipping on exchanges

4. Extend the return window for exchanges

According to Loop, 80% of the returns happen in the first 14 days. However, the return window of most of the ecommerce brands is 30 days. If you want to convert refunds into exchanges, you must incentivise customers. You can extend the time window for exchanges while keeping the time window for refunds the same or decreasing it.

For instance, the refund window can be 15 days and the exchange window can be 30-45 days. This will help you communicate that you value the loyalty of your customers and want them to have sufficient time to pick the right product.

Monkey's of Peachtree Battle's offers extended return window for exchanges
Monkey's of Peachtree Battle's offers extended return window for exchanges

5. Offer incentives on exchanges

The best way to persuade customers to ask for an exchange instead of a refund is to give offers, coupons, and discounts specifically on exchanges. Such incentives will entice customers to opt for an exchange. Moreover, it will give customers additional purchasing power above the value of the product they’re returning. Such rewards become even more exciting when you're also offering free return shipping on exchanges.

Chubbies provides offers on exchanges
Chubbies provides offers on exchanges

6. Foster loyalty with hassle-free returns

Nearly 95% of customers will likely buy again after experiencing a positive return experience. While 60% of returns on Shopify stores are because it’s the wrong size or style. This means, most of your returns have the potential to turn into an exchange—only if the returns process is easy. If you make it too hard, your customers will want a refund instead.

To create a hassle-free returns process, you can implement an ideal returns policy that benefits the customers as well as you. You must formulate a quick and easy process for initiating a return, refund, and exchange. Moreover, you can leverage a customer portal. This self-service portal will enable your customers to initiate, track, and manage returns whenever they want—instead of multiple emails with customer service. This way, you can generate more revenue and a higher CLTV for your ecommerce brand.

Bottom line

While returns can seem like a terrible loss to your ecommerce business, there still lies a hidden opportunity. Capitalising on that opportunity can help you reverse the revenue loss, i.e. turning refunds into exchanges. With a great customer experience, you can inspire customer loyalty and recoup the monetary adversity that comes with returns. You can mitigate the risk by implementing strategic tactics that can help delight your customers and boost your bottom line. That’s a win-win!

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