Many retailers offer full refunds in the matter of product returns, which further intensifies pervasive, increasing application of this option. While the return option stimulates the market demand via rectifying customers’ uncertainty regarding the value of products, it endures intense expenses to the retailer. Therefore, comparison of the full refund with the optimal refund strategy helps the retailers wisely decide whether to follow the commonly adhered strategy of full refund, or switch to the optimal refund strategy to alleviate the harms of the returns. To this end, we develop an analytical framework in this paper which can capture the impact of all major factors affecting the purchase and return behavior of customers. These factors, in addition to other commonly studied factors in the literature, include return leniency, and customers’ heterogeneity. Using this framework, we characterize the probability of a customer purchasing the product and the probabilities of keeping and returning it. These probabilities in turn characterize the retailer’s demand and return volume, which we use to address the optimal refund strategies of the retailers in various circumstances and specify the monetary outcomes of these strategies along with the outcomes of full refund. These results enable us the comparison between the two policies and decision making. Our analyses show under what circumstances the optimal return strategy has considerable benefit over the full refund policy. Plus, the analyses reveal the impact of various parameters on the benefit of refund strategy optimization.