A new university study recommends that free returns policies for online retailers may lead to some abuse but ultimately pays off handsomely in customer retention.
The research, which appears in the Journal of Marketing, was led by the Washington and Lee University's Williams School of Commerce, Economics, and Politics. It bases its findings on two surveys and customer spending data from two unidentified online retailers over a 49-month period. It found that when consumers received free shipping on returns, their purchases over the next two years increased between 58 percent and 357 percent, respectively. When forced to pay for return shipping, subsequent purchases declined 74 percent and 100 percent, respectively.
Amanda Bower, professor of business administration/marketing at Washington and Lee, told the university's blog that many retailers have adopted an "equity-based" return shipping policy, where the costs are based on which side is responsible for the return.
Prof. Bower said the "philosophy is that if it's your fault, you'll be fine paying for it, and it won't affect your future spending at all." But she finds this assumption is "completely wrong."
Indeed, regret or the anticipation of regret over paying for a return was found to be the number one determinant on whether shoppers would use the store again.
"For example, I've already paid $7 shipping and the piece of clothing arrives at my home. I try it on and it doesn't fit," Prof. Bower told the university's blog. "Now I've got to pay $7 return shipping, so I'm out $14 and I don't have anything. I've paid that money for the privilege of trying on clothing. So the really dominant driving characteristic is how much do I regret having spent $7 on return shipping in the past and is it really worth it to risk paying that money again in the future?"
"In contrast, free returns are similar to the saying, 'What would you do if you knew you couldn't fail?'"
Consumers were also found to assume retailers have a greater responsibility to absorb return shipping costs as a cost of doing business and they also tend to "assess blame independently — it could be nobody's fault." By contrast, retailer's equity-based policies skew toward assuming the retailer is less to blame and often wrongly finds the customer is at fault. The study also found that few consumers abuse such policies.
"I'm fascinated by questioning and researching fundamental assumptions people make about how consumers behave, and the counterproductive things that marketers do," said Prof. Bower. "Retailers need to have a firm grip on reality, on how consumers are actually going to act, not on what retailers think consumers should do or what they consider fair."