How Marketing Impacts Returns and Refunds

Nothing in an organization happens in a silo. That’s important to remember in the metrics that we track.

A good example of this are cancellations, returns and refunds. These metrics – items returned, dollars refunded, accounts cancelled, etc. – are used by companies to measure the relative satisfaction of customers.

Standard thinking assumes these numbers will never be zero. Not every customer will be satisfied. But the lower they are, the more likely you are serving their needs and keeping them happy. So we aim to keep them as low as we can, and when they go up, we scramble.

While it may not be obvious at first, sometimes our marketing impacts these numbers in a negative way. Marketing can make returns and refunds rise. But that does not necessarily mean there is a problem.

Here are some things marketing might do that can cause refunds, returns, and cancellations to rise:

  1. Marketing promotes the refund policy because it is a customer friendly policy that increases conversion rate by eliminating fear. Research shows that the more people are aware of return policies, the more they will use them.
     
  2. A limited time discount increases sales in the short term. Research shows that price sensitive shoppers are more likely to change their minds and request a refund.
     
  3. Marketing launches a new product that makes some existing customers decide to trade in their old one.
     
  4. Marketing wakes up dormant customers with an onboarding program, causing some customers to realize they never used this thing they bought.

In all these scenarios, and many others, marketing is taking an action that benefits the company while at the same time increasing the rate of returns or cancellations.

If we only measure returns, it looks like something bad has happened.

But when taken with the increase in sales or new customers or active users, the net outcome is positive.