Study Finds Wide Benefit to Free Online Returns
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."
Discussion Questions
Do you think retailers should all adopt free return policies for online shopping? Are there other ways that online retailers could manage the risk of abuse?
In today’s retail world, the power play is retailer differentiation. If free returns maps into a retailer’s need to differentiate themselves across select target markets, then it is a must do.
Why? Free returns is a online site “chatter point.” It is a fact about the retailer that is shared on a broad basis and reduces the shopper’s reasons that they should not spend more.
The word FREE has more meaning due to today’s economy (except in the area of free advice).
Go free returns and gain more shoppers…I like FREE.
There are some obvious exceptions: formal wear, furniture, jewelry, custom orders and a few others that don’t jump immediately to mind, but in general, free returns should be table stakes for online retailers.
“In contrast, free returns are similar to the saying, ‘What would you do if you knew you couldn’t fail?”
Hallelujah! My firm has been saying this for a long time and now here’s a new study affirming what we’ve been preaching. Punishing consumers for taking a chance on YOUR merchandise from YOUR online store is YOUR sure way to fail.
Online or off, look at examples like Trader Joe’s or Zappos. We had a lousy frozen pizza once and contacted Joe’s and they said to bring in the empty box for a refund — no questions asked. Zappos will let you buy 10 pair of shoes to keep only one (or none) and pay the freight both ways (shoebuy.com does too, then flags future orders). Both are doing quite well and both have very loyal customers.
Those brands that get the value of hassle free returns are the brands of the future. Online, especially with the coming sales tax, free shipping both ways is going to be the cost of entry for any merchant that wants to be competitive and maintain an edge over b&m retailers. In fact, Amazon is now adding free return shipping to fashion and shoe merchandise in a direct challenge to places like Macy’s that have buy online, return to the local store policies. While there will surely be abusers, successful businesses understand the math and know that the goodwill and convenience of a hassle-free user experience, including returns, outweighs the additional expense incurred.
One wonders why anyone needed this research. The results are very predictable. Professor Bower says it all…”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.”
I don’t understand the risk of abuse that retailers don’t have in brick & mortar. The idea is to get lots of merchandise in consumers’ hands. The more merchandise the consumer has, the more likelihood they will keep it. The margin on one additional item more than covers any return costs.
Zappos has no problem with someone ordering 12 pairs of shoes at $150.00 a pair knowing that the customer will only keep one or two. Why can’t other retailers understand that?
I think that online shopping strategies require the same context used for in store. Delight the consumer with a great shopping experience. And that includes return policies. Shipping costs tell the buyer that there is a greater financial risk associated with shopping online with this retailer than with others. Can we talk soon about re-stocking fees?
Since many retailers offer free return policies for online shopping, all retailers, to be competitive, should offer such policies as befits their own items.
But wait, this paradox of cautiousness could arise.
If a retailer will bear the cost of shipping to and fro, could that raise these two questions, irrelevant though they might now be, in customers’ minds? 1) “Are the items priced higher to cover multiple shipping costs as well as any risks of abuse?” And 2) “Is my time involvement with returns still preferable to taking time to shop in a store?” And the answer is: It depends on the savvy of the various retailers involved.
I’m going to take a little twist on this. I haven’t seen the numbers, but it would be my guess that you see fewer returns from online purchases than in-store. I also suspect that is because a person who buys online, is willing to wait for the purchase, etc., is a very motivated buyer and not just impulse buying. Chances are much higher that if they bought from you, they researched you, you are a trusted brand and they will buy again. Free returns is not too much to offer this loyal customer now, is it? (Items that Paula mentioned may have to take more consideration and thought.)
I pretty much agree with Gene (though I’m not sure a success rate of 8-16% is something most retailers would — or even should — feel comfortable with).
The advantage the e-commerce retailer has with free returns is “shrink.” Damaged, stolen and otherwise unsellable returns are a burden to the shrink portion of a company’s budget. The addition of this market practice to the internet retail sale was a great idea that has cost the brick and mortar competitor businesses both directly and indirectly. The dollars lost by the brick and mortar stores because of merchandise that left the store unpaid is not felt by e-commerce stores to the same extent. This additional shrink burden when added to the tax advantages that e-marketers have make it very difficult to compete, unless you are selling in a sales tax free state.
What is interesting to note is that the addition of e-commerce has largely brought about an increase in the number of competitors and very little in the increase of new markets. For that reason, when you add manufactures entering e-commerce retail — even with private labeling — to this mix, you have what is perhaps the most damaging of all competitive scenarios felt by the brick and mortar stores today.
Online retailers would be wise to offer a free shipping return policy. It increases sales (as proven in the aforementioned report) and provides customer loyalty. I think the increased sales and future customer loyalty (which equals future purchases) outweigh the cost of return abuse.
First, I like the fact the Professor Bower used research to understand the behavior of shoppers. Now, is free shipping for everyone? I would say no. It depends on what type of relationship you have (or are looking to build) with your customer.
I am finishing a great book now called “Uncommon Service” by Frances Frei and Anne Morriss. The big point they make is you must sacrifice some areas to be great in others. Basically, you can’t afford (financially) to be great across the board. So, if you offer free shipping on returns as a benefit, how will it be paid for? A slightly higher price, an operational savings internally or less service in another area?
The study by Prof. Bower shows that for these retailers offering free generated more sales. This does not necessarily apply across the board. Before moving forward with free shipping, I would recommend you conduct your own research related to your specific customers.
Is free shipping something your customers expect (really want) or are their other areas that would be more meaningful to your customers. It may be free shipping, but before making a rash decision and following the pack, do your own research so you know it is the best direction for you and your customers.
I agree with some of the great comments submitted so far. I do think that the amount of abusive returns are minuscule compared to the overall situation. I might try offering no charge returns, however, I may not blatantly advertise it.
This is a “duh,” really. The main hang up with online buying, other than security, for most consumers is the ability to return goods and the simplicity, ease and quickness with which it all happens. So, just do it! Figure it out! Because if you don’t, Piperlime, Amazon, Walmart, etc., surely will (have).
A friend of mine summed it up to me the other day, “I just bought something online from ____ (big apparel company), and boy, they don’t make it easy to return anything…guess I’ll try ____ (main competitor) next time.” Right.
We are in a competitive environment. Online retailers have to be as competitive as brick & mortar. Survival dictates finding ways to be better than the competition in more than just price.
Free returns is now the norm for successful companies doing business online. The cost of this is probably built into every sale, regardless of the return or not, to help cover the costs of those who return frequently. It is a shared built-in cost, so everyone wins. If the product ordered is high quality, than returns should be minimal. My wife loves Zappos, and spends a fair amount with them every year, and I’m sure they are making a profit as well.
Most retailers should adopt free online returns — it makes shopping hassle free, and enhances consumer trust. There is a lot to be gained by working with shoppers to make online shopping very low risk, and very competitive with brick and mortar stores. The long lineups at return desks on Monday AM are intimidating, no matter how “easy” the return policy. Reward loyal online shoppers keep shopping convenient to increase sales, instead of restrictive return policies for all shoppers to catch the the few who may be abusing store policy.