What the AG's office will do is to forward your letter to the merchant and if they replied, forward their answer back to you. They ususally don't investigate an individual case. However if there are many different complaints against the same company, they may start an investigation. If they find the fraud is predominant, they will file criminal charges against the company.
BBB (Better Business Bureau) works a little bit differently. They also mainly do the forwarding but they would record whether the customer is satified or not and whether the company repsonds in good faith. They make such statistics public and also grade the company based on such statitics. However, they don't ever do crimial investigation. The most damage they can do to a company is to give the compnay an 'F' and that is only if a consumer looks at their website.
You can put whatever you deem as a fair settlement in your letter (BTW, I personally think what you want is fair). But as you can see, both ways are not a sure way to get what you want. A responsible company would handle complaints from both sources seriously. But it is not the case for just any company.
The only sure way to get their attention is through lawsuite, a small claim case or not. But it is time consuming and no guaranteed result either. So for a lot of people, if they feel that they don't want to spend a lot of time and can tolerate the loss of money, but do not want the company get away for free, they only choose to complain to the AG & BBB.
