Online, every purchase is a small bet. The customer can’t try the shoes on or hold the sweater to the light. The return policy tells them what the bet costs if they lose, which makes it part of the price.

The option has a dollar value

Eric Anderson, Karsten Hansen and Duncan Simester put a number on it. Using a catalog retailer’s purchase and return data, they modeled the right to return as an option the customer holds, like insurance. For women’s footwear, the option was worth more than $15 per purchase on average, and having it raised purchase rates by more than 50% Published. The value varied a lot by customer and by category, which is the useful part: the option is worth most where the customer is least sure, on a first order, in a category with sizes, colors or textures that photographs don’t settle.

A return policy is insurance the customer buys with every order. Price it like insurance, and write it so they can read it.

Five dimensions of a policy

“Lenient” isn’t one setting. Narayan Janakiraman, Holly Syrdal and Ryan Freling reviewed the research on return policies and found that it describes leniency along five dimensions. Their meta-analysis of 21 papers then asked what each dimension does to purchases and to returns Published.

PublishedJanakiraman, Syrdal and Freling, Journal of Retailing, 2016. Overall, leniency increased purchases more than it increased returns.

Two findings deserve attention. Time works the opposite way from what most operators assume: longer windows went with fewer returns, possibly because of the endowment effect (the longer you own a thing, the more it feels like yours). And the dimensions that sell (money and effort) differ from the one that drives returns (scope). Be generous where it buys orders and firm where it only buys returns. One caution: many of the studies are scenario experiments, in which people read a policy and say what they’d do. Treat the table as a map of where to test, not a result.

What this means for a DTC brand

• Be generous on money and effort: free, printer-free, box-free where you can.
• Be clear on scope. Worn, washed or altered items are where cost hides. Say plainly what can’t come back.
• Don’t shorten the window to cut returns. The evidence suggests a longer one doesn’t raise returns. If you change it, test it (chapter 5).
• Show it where the bet is made: a one-line summary next to the add-to-cart button. The Honest Test covers the product page.

Do this

• Write your policy as five short answers: how much comes back, how hard it is, what’s excluded, how long they have, and whether they can swap. If any answer takes more than one sentence, that’s the one customers are confused by.