Why Amazon, Zara and H&M Are Gambling Away Their Customer Loyalty — and Paying a

Why risk obliterating customer trust for a few dollars? That’s the high-stakes gamble that’s plaguing the business landscape as companies increasingly implement return fees. In a bid to curb a burgeoning problem of product returns, businesses have inadvertently stepped into a loyalty minefield. The trend, prevalent yet contentious, warrants scrutiny through the lens of behavioral science to grasp its long-term ramifications.

So, here’s the conundrum: businesses are hemorrhaging money on returned goods. Happy Returns, a logistics company, released a survey that found 81% of retailers have implemented some form of return fee in the past year alone. On the surface, charging return fees seems like a logical step. It’s a move aimed at deterring frivolous returns, and according to many companies, it’s working.

Amazon, H&M, and Zara, retail giants in their own sectors, are among many that have started charging return fees and are promoting in-store returns. Amazon levies a $1 fee for shipping returns through United Parcel Service, while H&M charges $5.99 for returns sent through the U.S. Postal Service. Zara takes $3.95 off your refund for mailed returns.

Related: Amazon Is Now Charging a Fee For Some UPS Store Returns

On one hand, these fees are modest, but they are potent enough to disrupt the shopping experience. Consumers are savvy; they calculate the entire cost of shopping, including the hassle and expense of potential returns. Happy Returns also found that about a third of companies surveyed lost customers due to these new fees. According to their survey, more than 80% of consumers check a retailer’s return policy before making a purchase with a retailer for the first time and 55% of the consumer population surveyed have abandoned a shopping cart if the return policy wasn’t convenient.

Blue Yonder, a supply-chain software provider, further substantiates this in a different survey, revealing that 59% of consumers are deterred from making a purchase if they’re faced with tighter return policies. So, while you might stop the bleeding in the short term by charging return fees, you’re creating a less hospitable shopping environment that drives customers away in the long term.

The intricacies of cognitive biases in return fee decisions

While financial metrics and logistics often dominate corporate decisions about return fees, cognitive biases play an underrated but influential role in this complex equation. Recognizing these biases not only sheds light on why businesses might opt for such fees but also offers insights into how these choices can adversely affect customer behavior.

First, consider the cognitive bias of hyperbolic discounting. This bias explains our natural propensity to opt for immediate rewards over future benefits. When a business is dealing with the costly logistics of managing returns, the immediate relief provided by implementing a return fee can be overwhelmingly tempting. It’s a quick fix that shows immediate results, thereby satisfying shareholders and seemingly tightening up a leaky supply chain process. However, by focusing so intently on the here and now, companies often overlook the long-term consequence, which is the gradual erosion of customer loyalty.

Next, let’s delve into the empathy gap. This cognitive bias refers to the difficulty of understanding and predicting the emotional states of ourselves and others in situations that are different from the present. When board members discuss implementing a return fee, they may find it challenging to fully comprehend the emotional toll such a fee takes on consumers. Often encapsulated in corporate bubbles, decision-makers may not grasp that for many consumers, the fee is not just an economic cost but an emotional one. It feels like a betrayal, a breaking of the tacit trust between consumer and brand.

Finally, we must discuss the anchoring effect, where we grow used to a certain anchor and feel that it’s the normal and appropriate state. For years, many consumers have grown accustomed to a no-fee return policy, viewing it almost as a retail standard. When they’re suddenly confronted with return fees, even seemingly nominal ones, their reactions can range from surprise to betrayal. This anchoring effect — where customers have mentally pegged their shopping experience to the absence of return fees — means that the introduction of such fees creates cognitive dissonance and a negative emotional response.

This form of customer anchoring can have significant repercussions. Not only are these customers likely to reconsider future purchases, but their overall perception of the brand may also shift negatively. They may even become vocal critics, sharing their displeasure in reviews or across social networks, thereby influencing potential customers. Brands need to recognize that they’re not just introducing a new fee; they’re deviating from a consumer…