Refunds get spent like free money

Research confirms what you may already know to be true.

People are more likely to spend refunded money.

Let’s say you return a $100 jacket. According to Yu, Cryder and LeBoeuf (2024)  you are more likely to spend that $100 refund on a discretionary purchase than if you’d received the same amount as either income, an unexpected windfall or even a tax refund.

That’s because the money has already been designated as ‘spent’.

It feels like free money because it comes without obligation - you haven’t earmarked it for a different purpose like ‘savings’, for example.

I experience this whenever I return something at hardware retailer Bunnings - I walk straight from the Returns desk to whichever aisle holds the next item on my wish list. 

And I’m sure Bunnings knows this.

A gracious returns policy not only increases the likelihood of the initial purchase (eliminating risk for the customer), it increases the odds they’ll win back the value of the refund, anyway.

So for your business, consider not only making it easy to get refunds, but easy to spend as well!

For more on how to optimise your business using behavioural techniques, consider becoming a Just Do This member.

_References:

• _{Tianjiao Yu, Cynthia Cryder, Robyn A LeBoeuf, Refund Psychology, Journal of Consumer Research, Volume 51, Issue 2, August 2024, Pages 238–255, https://doi.org/10.1093/jcr/ucad067}
• _{Narayan Janakiraman, Holly A. Syrdal, Ryan Freling, The Effect of Return Policy Leniency on Consumer Purchase and Return Decisions: A Meta-analytic Review, Journal of Retailing,Volume 92, Issue 2, 2016, Pages 226-235, ISSN 0022-4359, https://doi.org/10.1016/j.jretai.2015.11.002.}