Ethics @ Work: Will new returns law guarantee satisfaction?

In Israel, it is still uncommon to receive a cash refund for returned goods.

shopping new york 311 (photo credit: AP)
shopping new york 311
(photo credit: AP)
One area where Israel has long lagged behind its colleagues in ethical practices is returns policy.
Getting your money back if you are unsatisfied is a common policy in the US and Europe. But in Israel it is still more common to allow only a store credit, often a time-limited one. The storekeepers blame what they view as the opportunistic Israeli consumer, the consumers blame what they view as the exploitative Israeli merchant, and all agree that the ethical situation leaves much to be desired.
This past week, the Industry, Trade and Labor Ministry submitted planned changes in the Consumer Protection Law that would require merchants to give cash back in most retail transactions. Is this policy in the best interest of the retail sector? If so, why hasn’t the sector adopted this policy by itself? There are two reasons why in the case of returns there can be a dichotomy between the interests of any individual store and the interests of the sector as a whole.
It is certainly true that even an individual store or chain will see advantages from adopting a more liberal returns policy. When customers know they will be able to return merchandise, they are more inclined to buy. They will also be more inclined to trust the merchant’s advice and judgment knowing that the merchant stands behind it with a guarantee of satisfaction.
But it could be that an isolated merchant adopting this policy could become the victim of “adverse selection”: a policy that tends to attract the most risky people.
For example, imagine that 95 percent of Israelis will return objects only for justified reasons, and only 5% allow themselves to take advantage of the seller; for example, buying evening wear on the day before an affair and returning it the next day because it just “doesn’t fit.” Most merchants likely would be happy with a liberal returns policy if they knew that only a small percent would abuse it.
But it is quite possible that if only a single store adopts the liberal policy, they won’t have 5% problem customers; they could have 50%! All of the abusers may target this one store. If this is indeed the situation, then a law can help matters by ensuring that all stores are toeing the line and maintaining a policy that ultimately is beneficial to all.
Another issue that could turn a winning returns policy into a loser is information. If only one store adopts a liberal returns policy, informing and especially convincing the public of this will be an expensive proposal. Just putting a sign in the window won’t do the job: Anyone not already near the store won’t see it, and without legislation, many will wonder if the policy is carried out fairly.
So even if loosening up is good for one individual store, the store may be reluctant to invest in creating public awareness. Again, legislation can address this issue. When there is a general law, the consumer will be easily informed and easily convinced that the returns policy he appreciates will actually be implemented by the store.
It’s true that in most cases we can rely on individual businesses to recognize and pursue their own best interest, and legislation will often be either superfluous or counterproductive.
But sometimes legislation can play a useful role in introducing norms that are ultimately beneficial for the entire economy.
There are many reasons to think that the proposed regulations will create a new and more ethical standard in the Israeli retail sector, one that will guarantee more satisfaction for customers and merchants alike.

Asher Meir is research director at the Business Ethics Center of Jerusalem, an independent institute in the Jerusalem College of Technology (Machon Lev).