The holiday of gift giving has finally arrived, and you know what that means: hideous ties from well-meaning children and sweaters twice your size from relatives you haven't seen in years.

You're grateful for the thoughtfulness, of course, but a survey from Newgistics this time last year revealed that more than one in five adults (22 percent) returned items that they received as gifts during the 2005 holiday season, "suggesting that returns are an inevitable part of the retail industry, particularly following the holiday gift-giving rush."

Some companies rely on return policies that put the company's needs way before those of the customer's. Businesses do this to push that quarterly profit to the maximum. As a result, many consumers have come to despise many corporations for their short-term orientation.

On the other hand, some companies have realized that a clear and concise return policy provides a feeling of security to customers — that what they are spending hard-earned money on is guaranteed to be what the business represents it to be. Therefore, the customer is more likely to become a repeat customer.

"Having a well-thought-out return policy clearly displayed in your store is key to attracting — and keeping — your customers," according to an article at AllBusiness.com, which points to "91 percent of consumers interviewed in a recent Harris Poll [having] said that a store's return policy was an important factor in a purchasing decision."

If it is time for your business to review the returns policy, there are at least five options:

1. Exchange only: This option eliminates the cost of refund processing but a shrewd businessperson might want to first consider what competitors are doing because this alternative can scare customers into the arms of competitors.

2. Store credit: For businesses that only sell one or very few products, this could leave customers feeling most displeased.

3. All sales final: This shows your firm is in it for the short term and does not really permit restitution for shipping-related damages. This option will seem wholly unfriendly to customers. This option will feel just right for managers who abide by "get the money and run."

4. Complete refunds: This costs the retailer for credit card processing fees but makes the customer feel like their patronage matters, thus probably leading to more visits from the customer to the store.

5. Restocking fees: A 10 percent to 20 percent restocking fee may be understandable for customers, but again, see what your competitors are doing so as not to be at a disadvantage in the eyes of current and potential customers. Your policy, however, should note if this fee applies to defective products.

After determining the policy that best reflects your business' positioning, remember the policy must be easy for consumers to read before they check out. If the customer hasn't been able to see the policy and it's not customer-friendly, then you have an irate customer who might consider contacting the Better Business Bureau.

If your business sells to arm-chair shoppers, ensure your return policy can be found fairly easily on the company Web site.

You want to do this because word-of-mouth via the Web can spread poor publicity in a matter of minutes. Many of dissatisfied customers are quick to post their experiences — good and bad — all over the Web.

A good return policy should answer the following questions, according to ReturnPolicies.net:

1. Are returns accepted?
2. If there are time limits for returns, what are they?
3. Are there conditions in which returns would not be accepted (damages to product)?
4. How should the customer start the return process?
5. If shipping is required, where should a customer send the product?
6. Will a Returned Merchandise Authorization be needed and who should get it?
7. Who must pay for shipping if required?
8. In what situations, might the seller pay for shipping?
9. If a refund will be forthcoming, will it be cash, check or credit to a credit card number?
10. If there is a restocking fee, how much will it amount to?

At the same time, retailers must protect themselves from return fraud, which can involve stolen or re-tagged merchandise as well as bogus receipts. A recent National Retail Federation study found about $10.8 billion in annual losses in fraud through merchandise returns alone. "It also can involve what's known as 'renting,' which is when a customer buys a dress or suit on a Friday, wears it to a big party on Saturday and tries to return it Sunday," as The Chicago Sun-Times has noted.

The goal is to be both fair and friendly without letting customers take advantage or commit return fraud. As such, small businesses must strike a balance: setting a clear policy that allows for some flexibility.

No doubt establishing return policies for smaller establishments can be difficult, but not establishing a clear and concise policy can ultimately undo customer loyalty to a business by shortsightedness.

Resources:

The Importance of a Good Return Policy
AllBusiness.com, July 10, 2007

Set Return Policies That Work for You and the Customer
AllBusiness.com

Reaping the Returns: Convenient Returns Process Helps Retailers Ensure Customer Loyalty
Newgistics, Dec. 13, 2006

What Makes a Good Return Policy?
ReturnPolicies.net

Happy Returns: Avoid Frustration: Know Store Policies
by Eileen Alt Powell
The Chicago Sun-Times, Dec. 19, 2005

Chances for Retail Theft, Fraud Increasing as Christmas Approaches
by Blackwell Thomas
The Southern.com, Dec. 7, 2007

Retail Stores with the Best Return Policies
SpringUsers.com