There are a lot of things that might affect what the most effective way to deal with these issues will be - personally, I send my items as unregistered large letters because the value is generally low, but I will send registered or with other forms of proof of postage is the purchase exceeds a certain value, or something else makes me think it could be worthwhile, and that's at my own expense.
In saying that, my business plan accounts for these extra expenses every so often, be they registered, a refund or replacement for an item. If an item goes missing, I have a pretty straightforward procedure (confirm they gave me the correct address to post to, inform that I will initiate a missing parcel investigation as well as send a replacement via registered like PJ, or issue a refund if I can't replace - replacement is more cost effective for me usually, even if I send it registered the second time around).
Knowing exactly what I'm going to do in these situations helps to minimise the time I spend doing it, and letting the customer know as soon as I respond what actions I will take, how I will help them, puts everything on better standing straight away - there's less back and forth trying to find out things, sort them out, etc, and buyers tend to be put at ease (thus much easier to communicate with) if they get a quick response that reassures them they won't be out of pocket for anything.
I decided a long time ago that my basic business practice is the buyer gets what they bought, or they get their money back, which - no matter what the legal obligations a seller may or may not have etc - is the general expectation of customers buying online anyway, so I thought since that's the kind of seller I'd really appreciate buying from, it's the kind of seller I chose to be. While my response to INR queries does subtly highlight a few things someone who is not being entirely honest might pay attention to, it is just a huge waste of my time and energy to wonder whether they're telling me the truth, so I take all buyers at their word unless they give me a reason I shouldn't.
