Return Shipping Policies of Online Retailers: Normative Assumptions and the Long-Term Consequences of Fee and Free Returns

Amanda B. Bower & James G. Maxham, III
Journal of Marketing
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Executive Summary
Many online and other distant retailers view product returns as a “necessary evil” and are motivated to limit or avoid paying return shipping costs. Reasons for this motivation include simply avoiding profit-damaging costs, controlling fraudulent returns, and even inducing consumers to keep products they might otherwise return. Many retailers have instituted policies to limit these product return shipping costs, such as an equity-based return shipping policy. With this type of policy, the retailer determines who is to blame for the product return (i.e., customer or the retailer) and assigns responsibility for the return shipping costs accordingly. These policies are intended to get customers to pay return shipping costs themselves with the hope that the sense of fairness and responsibility will neutralize any negative effects of paying for the return.
The authors compare retailers’ beliefs about how customers should respond to equity-based return shipping policies with how customers actually respond, from both psychological and behavioral points of view. Conclusions from two longitudinal field studies over 49 months using two surveys and actual customer spending data indicate that the retailers who require their customers to pay for their own returns are not only doing serious, long-term damage to customer relationships but also are ignoring the substantial benefits of free returns. Customers paying for their own returns universally decreased their spending, between 74% and 100% by the end of two years after the return. In contrast, customers who received a free return universally increased their spending between 158% and 457%.
There are a variety of reasons for these findings. First, customers do not have the same perception of equity as do retailers, believing that retailers have a greater responsibility to absorb those costs as a part of the cost of doing business. Second, equity-based shipping return policies assume that less blame to the retailer necessarily means more responsibility to customer, whereas customers assess blame independently. Third, retailers’ attempts at assigning blame in a manner consistent with the perceptions of customers are largely inaccurate, getting it right approximately as often as they get it wrong. Finally, a fourth and major reason for these findings is that while retailers think customers “should” respond to return shipping costs with assessments of fairness, customers are instead more preoccupied with feelings of regret. Return shipping costs lead to feelings of customer regret. Because customers are strongly motivated to avoid future regret, past return shipping costs have the effect of limiting or even eliminating future repurchases. In contrast, free returns may result in an apparent lack of concern for future costs. Similar to the saying “What would you do if you knew you couldn’t fail?” free returns seem to inspire a sense of “What would you buy if you knew you wouldn’t have to pay to return it?”
These findings offer strong support for the recommendation of universal free product returns. At a minimum, the authors’ work is a call to online retailers to consult their own customer data to determine any effects of return shipping costs on customer relationships and purchases.
Amanda B. Bower is Professor of Business Administration/Marketing & Advertising at Washington and Lee University. Professor Bower’s research is motivated by the desire to explore consumer responses to counterproductive or counterintuitive marketing strategies. In addition to the context of product returns, Professor Bower has explored construction of and compliance with product instructions, as well as various endorser contexts in advertising. She is a past member of the Executive Review Board of the Journal of Advertising and has been an Associate Editor of that journal since 2008.
James G. Maxham III is the Chesapeake & Potomac Telephone Company Professor of Commerce at the University of Virginia. Professor Maxham examines quantitative models that help managers better understand how customer experiences shape loyalty trends. Previously employed by the NCR Corporation and Russell Stover Candies, Professor Maxham currently teaches Customer Value Analytics at the University of Virginia. He also teaches global immersion courses in China and Southeast Asia. His research has been published in Marketing Science, Journal of Marketing, Journal of Applied Psychology, and Journal of Retailing, among others. He has served on the Editorial Review Board of Journal of Marketing and he currently serves on the Editorial Review Board for Journal of Retailing. Professor Maxham also serves on the CMO Council’s Customer Experience Advisory Board.
Journal of Marketing, Volume 76, Number 5, September 2012
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Amanda B. Bower & James G. Maxham, III
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