Sometimes for me it is cheaper to remake an item from scratch, rather than try and fix the one that the customer is unhappy with. I offer to make again, or a full refund. I have had some returns of non-personalised items due to items not being as expected, and for that I offer a full refund, but they cover return postage.
I think it is partly psychological. The first item is 'damaged' in the eyes of the customer. I've found almost nothing can fix that. So I make the item again. Then it is new and fresh again. Also, the customer doesn't have to go out of their way to send the first item back.
Whether they are actually right or not, they are 'right' in their own mind. Nothing can change their mind about being right. They are right. Full stop. When I learned to accept this, things became much easier for me.
One thing to keep in mind is that you can cancel an Etsy transaction if you refund, leaving their no possibility for negative feedback if the customer has not left any yet. I find this a good way to prevent myself from being held to ransom.
I hope this resolves itself kindly for you!