Retailers don't offer liberal return policies just to be nice: giving shoppers the assurance that they can return items makes them spend more.
This can help explain the success of successful companies like Zappos.com and Trader Joe's, according to the book Secrets of the Moneylab: How Behavioral Economics Can Improve Your Business.
Studying a mail-order apparel company, the authors found that women would spend $50 on shoes if they knew they had liberal return options. With stricter return policies, they would only spend $35.
Zappos.com sells shoes and offers no-questions-asked returns for 365 days, while Trader Joe's promises cash back if the customer doesn't like what they're getting. Companies like Ann Taylor and Gap take returns for three months.
Professional sports teams also play on risk-adverse customers, offering "playoff or payoff" scenarios in which season-ticket holders get a refund if the team doesn't do well, according to the book.
The principle can apply to many businesses, the authors say:
Most of us aren't in the insurance business. But we can all use the principles of insurance to profit from other people's risk aversion.
