Customer experience: Pinduoduo “only refunds” and is playing a high-end game theory game!

When implementing a "refund only" policy, e-commerce platforms need to develop a dynamic balancing strategy to protect the rights of consumers while ensuring the sustainable development of merchants, so as to achieve a win-win situation for all parties. In this way, the platform can successfully find a balance between merchants and customers and maintain a good game relationship.

After major e-commerce platforms competed to offer the "lowest price", "refund only" has become the new standard for e-commerce platforms.

"Refund only" means that users can apply for a refund without returning the goods. The original intention of this policy is to promote orders by improving user experience, screen out high-quality merchants, and increase merchant profits by increasing order volume, offset after-sales costs, and form a virtuous circle.

Pinduoduo implemented this rule as early as 2021.

By September 2023, Douyin introduced a "refund only" rule, followed by Taobao and JD.com at the end of the year, and Kuaishou in January 2024.

However, this rule, which was originally intended to protect consumers and maintain the platform ecosystem, has caused a lot of controversy during its implementation.

In March this year, some merchants on Pinduoduo were dissatisfied with the "refund only" rule, so they collectively placed orders in "Pinduoduo's own stores" and "brand stores" and then quickly refunded the orders, resulting in a "store bombing incident."

1. Professional “refund only” wool party

After JD.com and Taobao followed this rule, some small and medium-sized merchants also reported that some "freeloaders" had emerged who specialized in taking advantage of the "refund only" rule to make a profit.

On the other hand, some consumers are also worried that merchants will pass on the increased after-sales costs brought about by "refund only" or even the losses caused by "freeloaders" to ordinary consumers, thereby increasing product prices.

If the interests of users and merchants cannot be balanced, the result may be counterproductive, exacerbating the conflicts between merchants and users and affecting both parties' trust in the platform.

2. The Game between Merchants and Customers

🤔🤔🤔 Pinduoduo platform only provides a refund function. What kind of game relationship is this for the merchants and customers who have settled in the platform?

The refund-only function provided by the Pinduoduo platform actually forms a typical game relationship for merchants and customers: the "prisoner's dilemma."

To make it easier for everyone to understand, I will use a story to explain to you the specific principles of this game relationship.

👉🏻 Background setting: Suppose there are many merchants and customers on an e-commerce platform.

Merchant A sells high-quality electronic products.

Customer B is a user who likes to try new products.

The refund-only feature provided by the platform was originally intended to allow customers to apply for a refund without returning the goods.

👉🏻 Both parties in the game: For both parties participating in the game under the rules of the e-commerce platform, they will have their own "🤫 little thoughts" in the process of considering actions.

Merchant A: Hope to make a profit by selling goods (💰) and minimize losses.

Customer B: Hope to get high-quality products and get a refund easily if he is not satisfied.

Therefore, merchant A and customer B may adopt the following possible action strategies according to their respective “🤫 little thoughts”.

👉🏻 Merchant A’s strategy:

Provide high-quality products and strictly control quality.

Provides goods of average quality and accepts customers' requests for refunds only in some cases.

👉🏻 Customer B’s strategy:

Shop with integrity and only request a refund if you actually encounter a problem.

Abuse the refund-only feature to get free merchandise even when there are no issues.

The matrix of the game can be listed as:

• R (Reward): Both parties benefit, the merchant makes a profit and the customer is satisfied.
• S (Sucker's payoff): The merchant loses money and the customer gains.
• T (Temptation): Merchants make short-term profits, but customers are dissatisfied.
• P (Punishment): Both parties suffer losses and the platform’s reputation is damaged.

From the table above, we can see that in the entire game, if customer B chooses to shop with integrity and merchant A chooses to provide high-quality goods, both parties can benefit from it, creating a win-win situation.

However, if customer B chooses to abuse the refund-only feature and merchant A still provides high-quality goods, merchant A will suffer a loss while customer B will gain in the short term.

In this case, merchant A may choose to provide ordinary goods to reduce losses, which may lead to dissatisfaction of customer B and even affect the reputation of the platform.

If merchant A chooses to provide ordinary goods, and customer B chooses to shop with integrity, customer B will be disappointed. Although merchant A will make a profit in the short term, it may lose the customer's trust in the long run, affecting future sales.

The worst case scenario is that merchant A chooses to provide mediocre goods, and customer B chooses to abuse the refund function, resulting in losses for both parties and damage to the platform's reputation.

The introduction of the "refund only" function by e-commerce platforms actually introduced a complex game relationship.

In order to achieve a win-win situation in the "prisoner's dilemma" game, the platform needs to find a balance in design and supervision to encourage honest transactions and reduce abuse.

3. The win-win situation of the “prisoner’s dilemma”

What specific means can be used to optimize this game relationship and promote the development of a healthy business environment?

1) Strengthen the review mechanism

# Intelligent review system: Introducing machine learning and artificial intelligence technology to analyze customers' refund requests and their history to identify possible abuse. For example, customers who frequently request refunds will be marked and further reviewed.

# Manual review: For high-risk refund requests, the platform can arrange a dedicated manual team to conduct a detailed review to ensure the authenticity of the refund application.

2) Improve the return policy

# Clear return criteria: Establish clear return criteria and conditions so that both customers and merchants know under what circumstances they can apply for a refund only. For example, it is stipulated that a refund only can be applied for when the product is obviously defective or does not match the description.

# Gradually implement refund-only policy: For new customers or customers with higher risks, gradually relax the refund-only policy. First, verify the customer's integrity through transaction records over a period of time, and then gradually increase the amount and frequency of refund-only policy.

3) Incentives for customers and merchants

# Customer integrity rewards: For customers who shop with integrity for a long time, the platform can give certain rewards, such as coupons, points and other rewards to encourage customers to maintain integrity.

# Merchant quality assurance: For merchants who provide high-quality goods and good after-sales service, the platform can give higher exposure and promotion support to encourage merchants to maintain high-quality goods and services.

4) Transparent feedback mechanism

# Customer evaluation system: Allow customers to evaluate the merchant’s services after returning goods and getting a refund, and let other customers see these evaluations, increasing the merchant’s motivation to improve service quality.

# Merchants’ evaluation of customers: Merchants are allowed to evaluate customers’ shopping behaviors and give certain recognition and rewards to customers with high integrity.

5) Penalty mechanism for abusive behavior

# Punitive measures: For customers who are identified as abusing the refund-only function, the platform can take certain punitive measures, such as temporarily freezing the refund function, lowering credit scores, or even banning the account.

# Warning system: Before formally taking punitive measures, the platform can first issue a warning about abusive behavior, remind customers of the consequences of their behavior, and give customers a chance to correct their behavior.

4. Game Balance Point Case

Assume a scenario where, based on the methods mentioned above, after an e-commerce platform launches the "refund only" function, how does it design the balance point of the game between merchants and customers?

Customer C is a new user who purchased an electronic product but found some minor problems after receiving it.

Customer C applied for a refund only. The platform's intelligent review system recognized that this was Customer C's first refund application and the amount was small, so the application was quickly approved.

After a while, customer C bought another product again. This time there was no quality problem, but customer C still applied for a refund. The platform's intelligent review system found that customer C's behavior was abnormal and marked it as a high-risk refund.

The platform's manual review team conducted a detailed inspection and found that customer C's application did not meet the criteria for a refund only. Therefore, the refund application was rejected and a warning was issued to customer C.

In the following shopping, customer C realized the possible consequences of abusing the refund function and started shopping with integrity. (⚖️ Dynamic balance)

The platform tracked the behavior of customer C and found that customer C had no abnormal behavior in the following purchases, so his normal refund rights were restored.

Through this mechanism, the platform has successfully found a balance point, protecting the rights and interests of customers, preventing abuse, and maintaining a good game relationship between merchants and customers.

5. Final Thoughts

This kind of game is ubiquitous in the actual business environment, especially in the pursuit of business success and customer experience.

When implementing a “refund only” policy, e-commerce platforms need to find a balance between improving user experience and protecting the interests of merchants.

If the interests of any party are excessively damaged, the long-term business model cannot be maintained.

The platform must cooperate with merchants to develop a dynamic balancing strategy that can both protect the rights and interests of consumers and ensure the sustainable development of merchants, ultimately achieving a win-win situation for all parties.

above.