Give refunds instantly

Topics: Customer Experience | Ecommerce
For: B2C
Research date: July 2022

📝 Intro

You bought a pair of sneakers online.

But when they arrive you’re unconvinced. You decide to return them.

The next day, you drop them off at the post office.

A few minutes after you do that, you’re surprised to get an email saying that your refund has been processed.

The email includes a few recommendations for similarly priced options of different sneakers.

You think, why not? You’ve already spent that money anyway. The refund feels like ‘free money’.

So you buy a new pair.

This is the power of instant refunds.

📈 Recommendation

When customers return a product, give them an immediate refund as soon as they ship it. Don’t make them wait for the item to be processed (unless there is a high fraud rate for that type of product).

People will be more satisfied and more likely to buy from you again, without increasing return rates.

🎓 Findings

• Offering the option of an instant refund when returning a purchase increases satisfaction, future purchase intentions, and improves perceptions of the company.

• As part of two online experiments, researchers found that:

  • An instant refund felt 135% faster than the traditional 7-14 day refund processing cycle

  • People’s intentions to buy again were 12.2% higher and they were 12.4% more satisfied with the return experience

• This technique does not increase the rate of product returns.

🧠 Why it works

• Returning a product bought online usually takes longer than returns at a physical store. The wait time between returning an item and receiving a refund makes us feel anxious.

• One of the ways that we judge how fair a company’s policies and procedures are is based on how quickly they are carried out. Receiving a refund instantly feels simple and fast, making us view the process as fairer.

• When a company gives us a quick and easy refund process, it makes us feel that the company cares about us.

✋ Limitations

• The experiments were based on people’s responses to an imagined scenario in which they bought a coat online. The study might have missed some elements of what happens in real-life buying and return situations.

• The study found that instant refunds did not increase returns. It’s possible that in certain situations returns would increase - for example if the company becomes known for offering instant refunds or advertises it heavily.

• Fraud or abuse rates for returns were not measured in this study. They might rise for certain products, but this was not tested.

• The time the customer’s bank takes to process the refund might also impact how satisfied they feel. For example, some payment methods (e.g. PayPal, digital banks) might be faster than other (e.g. traditional banks). This was not tested.

🏢 Companies using this

• Handling returns is a known pain point in the customer experience. Benchmarks vary, but around 30% of online purchases are returned, with more than 40% of customers unhappy with the return process.

• Some large retailers already offer instant refunds:

  • For many products, Amazon issues a refund as soon as a return request is initiated, giving customers 30 days to post the item.

  • Chinese retailers Taobao and JD.com issue refunds as soon as a customer ships the product for return and provides the shipment tracking number

• REVER, WooCommerce Smart Refunder, Instant Refunds for Shopify and payments provider Tink all offer options to provide automated and instant refunds through their products.

REVER, an example of a returns management provider, allows you to give instant refunds alongside other options

⚡ Steps to implement

• Instantly refund your customers as soon as they ship an item back to you.

• You can receive confirmation that they shipped the item directly from your shipping partner, or ask customers to provide the shipping tracking number.

• Make this a priority if your current returns and refund process is relatively slow.

• This technique may prove especially useful after sales on special days (e.g. Black Friday, Cyber Monday), when a surge of product returns will further slow down the return and refund process.

• To further increase satisfaction, make the return experience as easy as possible. For example:

  • Allow customers to easily return the product in the original packaging in which they received it

  • Provide pre-printed free shipping return labels within your packaging

  • Partner with shipping or logistics companies that have widely available dropoff points and provide a good experience

  • If you have physical stores, allow customers to return items in them, even if they purchased them online

🔍 Study type

Online experiments.

📖 Research

Using instant refunds to improve online return experiences. Journal of Retailing and Consumer Services (July 2022).

🏫 Researchers

• Francisco J. Martínez-Lopez. University of Granada & EAE Business School

• Changyuan Feng. University of Granada

• Yangchun Li. Zhejiang University of Technology

• David López López. Esade Business School

Remember: This is a new scientific discovery. In the future it will probably be better understood and could even be proven wrong (that’s how science works). It may also not be generalizable to your situation. If it’s a risky change, always test it on a small scale before rolling it out widely.