Generosity Pays: How Reformation Could Benefit from Improved Refund Policies

Purpose of Case Study

Research has shown that a singular bad review can deter over 22% of potential customers from buying from your company. Who knew losing so many customers could come from this simple a source?

The sad thing is, it might not even be the product that’s the issue. Tons of customers leave bad reviews when they have a singular bad experience, or if they felt the employees or customer service agents were rude, or even if delivery was a bit slower than expected.

But so many brands overlook the importance of customer experience when it comes to unlocking new opportunities to boost revenue. Reformation is the perfect example of a brand that has products people love, but a customer experience people aren’t too happy with.

On Trustpilot, Reformation sits at a lowly 1.8-star rating. Let’s find out why their rating is so low and estimate how much revenue they could be losing as a result.

The Analysis

To run our analysis, we pulled several hundred reviews from Trustpilot and ran them through Cotera to identify the primary sources of reviews with negative sentiment.

We found that the primary reasons for a negative review included dissatisfaction with Reformation’s refunding process, along with poor customer service. However, customer service complaints primarily revolved around refunds or “getting money back,” so both these areas are intertwined and dominate the type of negative sentiment.

Now here’s the thing. I’m sure that a good chunk of the customers upset with the refunding process are actually in the wrong. But it might actually be worth it for Reformation to bite the bullet and let them win — and here’s why.

According to Ahrefs, Reformation’s Trustpilot page seems to get around 1,500 visits every year. These potential customers visit this page, only to come across their horrendous 1.8 star rating.

According to BrightLocal, over 87% of customers would not consider buying from a brand with a 1 or 2 star rating. Assuming this statistic is true, Reformation could be missing out on revenue from up to 1,300 (1,500 x 87%) potential customers every year.

Let’s say Reformation’s average order value is about $200 (given the average price of a singular clothing item on their site). That’s around $260,000 ($200 x 1,300) of revenue theoretically lost.

Now imagine if every customer who complained about refunds (approximately 500 in total) was refunded 100% of the time. Assuming the same AOV, Reformation would be losing about $100,000, BUT potentially making back $260,000 by boosting their rating AND increasing the LTV of customers who would have churned otherwise.

Meaningfulness of Results

What this implies is that sometimes, it’s worth it for a brand to make some sacrifices in the short-term for more long term wins. Obviously, these numbers aren’t exact — only estimates to try to prove a point — but it wouldn’t hurt for Reformation to do the math themselves using ALL their internal data and see if they get the same results we did.

Plus, we really can’t forget about all the customers that churn due to customer service or refunding issues — this is what’s especially hard-hitting for any brand, seeing as nearly half of a company’s profits come from repeat purchases.

Taking a few financial hits on return requests might not even lose them as much as they expect to. For instance, they could upcycle unsellable returned clothing items (playing into their sustainability mission), or even re-sell them at reasonable discounts. And I’m not even telling you to give in to EVERY customer — obviously there are exceptions here.

But given how important reviews and referrals are these days, investing in customer experience and actively listening to customer feedback is the only way to nurture customer loyalty and advocacy.

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