Whenever I have an issue and I'm unsure of the course of action I should take, I always first ask myself this one important question "Am I a business or a hobby?". The answer to that question is, of course, a business. Usually just that one simple reminder gives me the right course of action to take. If you were a customer, what would you expect from a business?
I see sellers on the Etsy forums all the time asking questions that show they clearly haven't yet made the mental leap from hobby to business. For example, I see this one issue come up time and time again - the package that got lost in the mail. Usually, the Etsy seller will come on the forum and ask what they should do. Often times, the tracking shows that the package has been delivered, but the customer is stating that they haven't received it. This does happen from time to time. It has happened to me a handful of times in the 5 years that I've been selling on-line. If you consider yourself a legitimate business, the answer is obvious - you either refund the customer or send another package. Do you lose some money in the process? Yes, you do. But, that is the cost of doing 'business'.
However, this does go both ways. I also see Etsy sellers coming to the forums because they are being 'bullied' by a customer. A customer is making unreasonable demands and threatening to leave bad feedback if the seller doesn't comply. Again, you ask yourself if you are a business or a hobby. A business doesn't allow itself to be bullied by going against their own policies just because a customer threatens them. It's always good practice to bend your policies to give good customer service as needed, but it's not necessary to always succumb to demands that are not core to your business values. We all want good feedback and should always strive to deliver the best product and customer service, but one bad feedback isn't going to ruin your business and you must always trust your own judgment. It's ok to say no and risk losing a sale when it doesn't feel right.
Next time you are faced with a difficult situation, first ask yourself if you are a business or a hobby. That will usually lead you to the correct action.