Why a Customer Friendly Refund Policy is Essential for Your Business (in Germany)!
Updated: Mar 10
The emotional burden of refunding
Refunding is the morning cleaning after a party of the online business. No matter how much effort you put to avoid this task, you have to do it at some point and you will hate it. It's hard not to feel it as some kind of personal attack when someone wants their money back for a product you so meticulously chose, designed, or even crafted.
If the product got damaged by DHL, you might be okay. But getting the first refund requests because your customers don't like your product or even feel cheated is hard! However, as in all of life, don't bother with every single opinion, some people will just dislike your product and service and that's fine. For Christ's sake, there are even people who didn't like the "Shawshank redemption". So in short, try to leave it behind and focus on the steps you have to take for crafting and implementing a refund policy. That task actually matters because a good or bad refund policy can make or break your business. First of all, you have legal obligations to fulfill in Germany and the rest of the EU. This includes a 14 day right of return and other obligations and if you don't adhere to them, you might fail your business. This article is not about your legal obligations but about how you can use the return policy to your advantage and avoid pitfalls.
Convince customers to press the order button!
Let's assume you are starting from scratch to sell your products online. You have a lot to think about like for example selling through Amazon or at your own online shop? and who in Germany is buying from foreign online shops?. But most importantly you have to think about how to make your target group buy your products and here is why especially in the beginning a customer-friendly return policy is crucial.
When the customer enters your website for the first time and can not find any reviews, he or she will naturally hesitate. To counter that you can go into the offensive and make clear that you have a great return policy! Knowing that you will take back the articles they will believe that you are confident in your product and that you value him as a customer. Offering your customers a "one-month-no-question-asked-refund-policy" will melt their reservations and perceived risk, as fast as the icecaps of the north pole. And boy, they are melting fast! And this is not a formality. It will have a big impact on your business since 33% of all online shoppers, who can not easily find the return policy on a website, will not buy from that online shop.
Avoid bad reviews by satisfying unsatisfied customers
Additionally, 96% of all online shoppers would even return to your online shop after they had sent an article back and the return policy of the shop was convenient for them. So nearly no customer has a grudge against your company because something went wrong, as long as your return policy is stress-free for the customer.
In the long run, an easy return policy will also give you great reviews, or at least shield you from bad ones. Hate is a way more powerful emotion than pleasing goodwill. If someone didn't like your product and can not return it, he will butcher you in the ratings of Google, Facebook, and co. And future customers will read this, 93% of all online shoppers read sometimes customer opinions before they purchase and 35% even read customer reviews every single time.
So all in all take the following short checklist to heart if you want to succeed!
Have a refund policy
Make it easy to find (put a link in the footer, shopping cart, etc.)
what can be returned and what cannot (discount items for example)
until when your customers have to return it
who pays the return shipping fee
for what it can be returned (cash, shop credit, a new product, etc.)
in which condition it can be returned
how it works, the return and refund process
what is going to happen if the package gets lost
Opportunities in refunding
You may ask is there more than tedium and damage control to this task? Isn't it true that problems are nothing more than thorny opportunities? In short, for the first question, kind of. For the second one, no not at all, where do you read such hollow inspiration quotes? Problems are just problems, but sometimes you can find ways to reduce them or learn something from them and for that, we are here to help you.
Find out about the reasons and solve them
Knowing what was sent back and for what reason can give you valuable feedback on your products and distribution. The reasons that are causing high return rates can be obvious things like your fulfillment processes are too slow or one of your products has a design flaw. By collecting and analyzing data you can find out where the weak spots of your processes, articles, or business activities are and tackle them.
The importance of expectations management when selling to Germans
However, the reason for high return rates can also be due to unrealistic product descriptions and advertisements. If your product description does not fit the product you will get more returns. For instance, when you describe the product quality as "super deluxe premium" German customers will expect "super deluxe premium quality"! And what is going to happen when the German customer receives the product and it as just "average quality"? The expectations will not be met and he or she will be very unsatisfied or even feel scammed. For that, it is quite important to understand that German customers do expect what is said to them and it is important to them that this expectation is met, otherwise they will be unsatisfied!
Luckily, there are some easy steps to reduce this kind of refunding: fitting product description and high quality and realistic pictures of your product (from every angle). Side note: a lot of shops use photomontage for their product and it is not the best option.
I mean which of those product demonstrations would you think is more accurate, the left or the right lamp? As someone who saw both products in real life, the left was accurate whereas the right was... well not very accurate. Nothing against using good lighting, a professional appearing product demonstration, and even a bit post-production with Photoshop (or other easier to use photo editing tools). But if the product is shown in an unrealistic way you risk not being able to meet the expectation of your customers and thereby increasing the return rate (see above).
Reduce your loses
Normally you lose a lot of money for each return (lost revenue, shipping, labor costs, replacement, etc.). First, you can cut down on the organizational costs, with a refunding tool you can integrate into your shop, like Return Magic or Returnly... yeah return tool programmers are not the most creative name givers. Another option to cut expenses could be to let your unsatisfied customer pay for the return shipment (if the product is not broken of course). This, however, is not a good idea to be honest, since a free return policy is industry-standard in Germany and German customers are used to and even expect it. Moreover, even the big German shops that sell products with very high return rates (e.g. clothes) like Zalando cover the return shipping. There are of course exceptions to this rule. For example, if you are an environment-friendly online shop you can stitch the environment-friendliness into your corporate identity, but even then be careful with charging unsatisfied customers to return the products they are unhappy with.
Make unsatisfied customers loyal customer
The good thing is, customers have to come back to your website to make the refund. At this stage, when they least expect it, you can catch them to order another item. As explained before, 96% of customers who sent a product back have no problem with shopping at a store again when the refund was easy.
So, how should you refund your unsatisfied customers? Refund the money at the same payment method the customer paid with? Sure! Especially as it is also standard, you should consider that. However, we recommend offering other options as well. For example, you could offer a replacement. Or you give some store credit and because you are terribly sorry for the inconvenience, you give them a 10€ extra or 10% for your next purchases. This way the customer has an incentive to come back to your online shop, to use that extra money he received. As gaining a new customer is more expensive than holding one, this 10€/% gift can transform an unsatisfied customer through this annoying task into a loyal customer for years.
Make sure you comply with the EU directive and corresponding German law on consumer rights
Check the checklist above for a return policy
Find the reasons for the returns to solve them
Give the customer some extra incentive to buy from your store again
Buchreport (2020), buchreport.de/news/it-wie-online-bewertungen-vertrauen-schaffen
EU (2020), europa.eu/youreurope/citizens/consumers/shopping/guarantees-returns/index_en.htm
Narva (2018): Consumer Report, see.narvar.com/rs/249-TEC-877/images/Consumer-Report-Returns-2018-4.3.pdf
Sywottek (2020), brandeins.de/magazine/brand-eins-wirtschaftsmagazin/2016/das-neue-verkaufen/rolle-rueckwaerts