Practical Ecommerce

Ecommerce Know-How: Avoiding Chargebacks and Improving Business

Chargebacks are frustrating and expensive assaults on a retailer’s bottom line. But practical and smart merchants can learn from some chargebacks, improving their stores’ performance, customer satisfaction, and operational excellence.

When a consumer asks his or her credit card company for a refund, a merchant can suffer a chargeback. That is, the credit card company will reach into a merchant’s bank account and take the total amount of the transaction that’s being charged back. Then, any one of three or more different types of organizations—issuing banks, merchant banks, and payment gateways—could charge the merchant a fee for its trouble. Throughout this process, no one bothers to inform or ask the merchant.

Ecommerce Know-How: Chargebacks

Chargebacks fall into two categories (1) fraud and fraud prevention or (2) customer dissatisfaction. While fraud is an important topic, we’ll focus on the second type of chargeback, customer dissatisfaction.

Self-Inflicted, Operational Chargebacks

Some customers are loyal, some are friendly, but some are persnickety knuckleheads who wouldn’t know a product description from a return policy. Nonetheless retailers have to service them, too. Consider this example.

Jennifer M. is a professional living in Alexandra, Virginia. Late on a Sunday, Jennifer made an online purchase, selecting the least expensive and slowest means of delivery, but expecting her box to arrive by Tuesday. The store shipped the order Monday on the carrier Jennifer selected at the service level she chose. But Thursday, Jennifer called her credit card company and asked for a refund. “I never received my merchandise,” she said. The package arrived the next day.

This chargeback was self-inflicted and operational. Although the retailer wasn’t doing anything wrong, he also wasn’t doing everything right. Merchants must set a customer’s expectations properly. Jennifer incorrectly believed that parcel post packages should arrive in “two days,” and the store had done nothing to correct her.

Avoiding Operational Chargebacks

If a customer misunderstands a product description, imagines that a store should respond to emails like they’re a chat session, or didn’t follow an exchange policy and a chargeback occurs, it’s operational, controllable, and avoidable. It’s all about communicating and setting expectations.

Set Product Expectations—If a customer doesn’t correctly understand what she’s ordering, she may decide to return the purchase or, worse, call her card-issuing bank and initiate a chargeback. To set this customer straight, try this:

  • Use clear, concise product descriptions
  • Include product dimensions, weights, and applicable measurements
  • Describe materials and special handling
  • Use large, clear photographs on product pages
  • Include product information in the shopping cart

Set Shipping Expectations—Customers don’t understand shipping. They don’t realize what it costs, they imagine that boxes are free, and they think that nothing should take more than a couple of days to arrive. To educate your customers, try this:

  • Clearly state when a product is likely to ship, “Usually ships in four business days”
  • During the checkout, include arrival estimates with each shipping option, “UPS Ground, takes 5-to-7 business days”
  • Include estimated delivery dates in your shipping confirmation email
  • Consider adding an “About Shipping” section to your site, describing how you pack orders and why it can take several days for a package to arrive

Set Policy Expectations—If good fences make good neighbors, then good policies make good online retail transactions. Just because a customer wants to return or exchange an order, doesn’t mean that they’ll never buy from you again. In fact, if you handle customer complaints well, you’re likely to get a loyal following. To set policy expectations, try this:

  • Include links to return, exchange, and payment policies on product pages and in the checkout process
  • Explain step by step how a customer can return or exchange an item
  • Require shoppers to accept store policies when they check out
  • Mention store policies in order confirmation emails
  • Pay refunds promptly

Set Customer Service Expectations—When a customer has a problem, he or she expects you to be there. Try this:

  • Acknowledge customer service emails automatically, setting the customer’s expectations about when they’ll get a response
  • Describe on your contact page how your store’s customer service works

Challenging Operational Chargebacks

Fortunately, operational chargebacks like Jennifer’s are fairly easy to challenge. In this case, Jennifer’s email complaining about the store’s service mentioned that she had received the package. The merchant faxed a copy of that email, along with a delivery confirmation notice, to his payment processor within a 22-day window. The payment processor re-presented the bill, and the chargeback was reversed.

The Opportunity

Chargebacks like Jennifer’s give stores a chance to improve. By setting proper expectations an online retailer is not just avoiding chargebacks, but also developing a better store.

Read more about “eCommerce Know-How.”

Armando Roggio
Armando Roggio
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Comments ( 2 )

  1. Dennis December 10, 2008 Reply

    I think the long term costs of self-inflicted chargebacks will prompt the more respectable merchants to take a deeper look at their customer service practices.

  2. Mike March 13, 2014 Reply

    This was very helpful, thanks!

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