March 23, 2010

Pros and Cons of a Money-Back Guarantee


Hostway Team

By Gail Seymour

Are you selling products or services from your Web site and concerned about offering a money-back guarantee? Maybe you think offering a guarantee will lead to more refunds and adversely affect your profitability? In reality, the reverse is usually the case.

Pro: Protecting Consumer Rights

Your customers already have statutory rights you are bound to honor. When you make a sale, you enter a legally binding contract that protects the consumer against faulty goods, poor workmanship or inaccurate descriptions. Some money-back guarantees are nothing more than a re-iteration of these rights. This is often followed by instructions for customers to contact the company, designed to make rectification of any problems simple.

Pro: Preventing Charge backs

Customers who purchase using a credit card also have added protection, because the credit card company becomes a third-party in the transaction. Customers who are unable to obtain a refund directly from you may simply charge with the credit card company, who will reclaim the amount from you. If you instigate the refund, it costs you only the amount in dispute. If you receive a charge back, you also have to pay an additional fee. It looks bad on your record and your merchant service provider could also rescind the account if you incur too many.

Pro: Building Credibility

A customer who purchases a faulty product, or is unhappy with a service, and has to fight to get their money back, is never going to buy from you again. They are also likely to tell all their friends not to deal with you. One who has received a swift refund, replacement or advice on alternative products and services, however, could become a customer for life. They might also become a vocal advocate for your business, as they trust you not only to deliver, but also to back up your offering with solid customer service.

Pro: A Useful Sales Aid

Perceived risk introduces friction into the buying process. A highly visible, jargon free guarantee can go a long way to reducing that friction and dramatically increase sales. A guarantee tucked away behind a single text link, or only accessible by the site map will do little for your profile. One linked to from a graphic included on your Web site template, and teamed with other such as those indicating security certificates, or awards won, on the other hand, will help build trust.

Cons: Satisfaction is Never Guaranteed.

Although you can offer a, "no-quibble, satisfaction guaranteed” money-back offer, you can never entirely guarantee satisfaction. You don't know your customer's expectations. Some are simply unrealistic and impossible to please, or just complaining for the chance of a freebie.

Cons: The Short Deadline

You may want to impose a time limit for requests for a refund. If you do, be aware that longer deadlines typically result in fewer refunds, maybe because customers will remember a closer deadline, but forget about a longer one.

The pros of a carefully crafted money-back guarantee will outweigh the cons. Your guarantee should be very clear about what is covered and what is not, and tell potential customers how they can claim under the guarantee for maximum effect.

About the Author

Gail Seymour has been a Web site designer for more than 10 years. During that time she has won three Sitesell design awards, and has provided the content and copy for dozens of Web sites and more than 50,000 Web pages.

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