4 strategies to turn refunds into exchanges.

Returns are an inevitable part of running an online brand. But not all returns are created equal. In this post, we’ll explain why exchanges are significantly more valuable than refunds and how you can incentivize your customers to go for the better option. It's a win-win for you and them.

Why is an exchange is more valuable than a refund?

The reason why exchanges are more valuable than refunds is simple:

Exchanges = customer wants to continue the relationship with your brand

Refunds = signals the end of the relationship with your brand

This has many implications on your business. When customers choose an exchange over a refund, your brand retains revenue since they didn’t request money back. You also build brand loyalty by putting the right product in the customer’s hands. 

Exchanges also have a significant impact on LTV. One of the apparel brands we work with at Loop (who we kept anonymous to protect their business intelligence) shared their LTV numbers with us to illustrate this point. 

Customers with no return events = $165.96

Customers with at least 1 return event = $384.22

Customers with at least 1 exchange event = $417.35

Not only is there an increase of 131% in LTV between those who have interacted with the returns process and those who haven’t, but you can also see how LTV goes up by an additional 9% when a customer goes through the exchange process.

Four strategies to turn refunds into exchanges

It’s within your power to reduce your refund rate and increase exchanges instead. Here are four tips you can put into action today.

1. Offer free shipping on exchanges

Most brands take one of two stances when it comes to shipping on returns: 1.) they view returns as a cost center and therefore want to charge for shipping to minimize returns or 2.) they view the returns process as an extension of the shopping experience and use free shipping to reduce perceived risk at purchase.

At Loop, we’ve seen time and time again that the second approach is the most effective. We also put a unique spin on it and encourage brands to offer free shipping only for exchanges. For refunds? Charge a small shipping fee. Check out how effective this approach was for a footwear brand we work with:

As you can see, over two months of charging a shipping fee, exchange rates climbed 25.4% and refund rates went down by 28%.

2. Extend the return window for exchanges

Many brands default to a 30-day return window - even though there’s no data to support that a 30-day return window is superior to a 60-day (or longer) return window. What we do know is that 80% of the returns we process at Loop (more than 5,000,000) happen in the first 14 days. This means that you can offer a more generous return window, knowing that the majority of customers will be returning in 14 days anyway.

We see 80% of returns that happen on Loop are processed in the first 14 days.

Since we’re trying to incentivize more exchanges, we recommend applying this generosity only to this type of return. This shows customers that you value their loyalty and want them to have as much time as they need to pick the right product. Also, keep in mind that 67% of shoppers check the returns page before making a purchase.

67% of shoppers check the returns page before they make a purchase.

What do you think is going to make them more likely to convert: a 30-day return window or a 365-day return window?

3. Offer bonus credit for exchanges

Another way to turn your refunds into exchanges is to offer customers a bonus credit. This is a feature we offer at Loop, and it’s essentially a way to give customers additional purchasing power above the value of what they’re returning. This reward becomes even more powerful when combined with the shipping fee charged on a refund. 

For example, let’s say you offer customers $10 in bonus credit for an exchange. That means a customer who still wants a refund has to turn down free money and incur an additional fee for shipping. On the other hand, if a customer decides to opt for an exchange, they get 10 extra dollars to spend on their purchase and end up with a product that they want (potentially at no extra cost to them).

4. Automate your returns process

60% of returns on stores powered by Shopify are because it’s the wrong size or style. This means that more than half of your returns have the potential to turn into an exchange - but only if your returns process is easy. Make it too hard, and your customers will turn to a refund instead.

That’s why we encourage brands to use an on-demand return portal. Instead of forcing customers to send back-and-forth emails with your customer support team for something as simple as an exchange, you can give them a hassle-free experience. This, in turn, can generate more revenue and a higher LTV for your brand since 92% of consumers have stated that they’ll buy something again if returns are easy.

92% of customers will buy from a brand again if they experience an easy returns process

It’s time to shift the way you think about returns and prioritize turning as many of your refunds into exchanges as possible. Not only will you end up with happier customers, but you’ll also retain revenue, increase LTV, and build brand loyalty in the process. If you need help optimizing your return process for exchanges, let’s talk.