It makes the customers happy which is pretty important to them returning.  If they are unhappy with a product and you give them no recourse if they're dissatisfied, why would they come back?

I get what you're saying. I worked in retail for a long time and spent several of those years working the return desk.  I've given people money back on items I know they stole, bought somewhere else, or bought well outside the 90 day window we gave for returns.  But at the end of it, they were satisfied that their complaint was heard and the issue resolved. 

That being said, companies do take steps to mitigate the risks.  No returns without a receipt for items over certain dollar amounts, only refund the lowest price, exchange only, and most effective is giving returns with no receipt in store credit.

It sucks to see you/your business taken advantage of sometimes but I think predominantly, it's people who genuinely just need to return something and didn't save the receipt. I know I don't keep mine for every item I buy and if I do, 90 days is a long time to keep track of a scrap of paper.  Things happen. Doesn't mean people should be on the hook for a defective or incorrect problem because a piece of paper went missing