A money-back guarantee works both ways.
It’s more than an agreement. It’s a promise that we will part friends – either we make you a kick-ass logo or it’s free.
When either party uses it to screw the other, it becomes pointless.
My issue is with clients who view money-back guarantees as a ticket to hire several logo designers for the same project, then select a winner and demand refunds from the rest. These folks are a very small minority of course, but they appear on my radar occasionally. It gets my blood boiling each time. If you want free logos, go to logologo.com. If you prefer hiring a logo designer, paying him/her for their time is the right thing to do!
As a designer, I think the best strategy is to issue the refund and politely thank them for trying your service. Then vent on your blog and move on.