How much do online consumers really value free product returns? Evidence from eBay
As return policies have become increasingly generous, the result has been a well-documented rise in the costs of processing consumer returns. Presumably, these costs are justified by incremental revenues that would not be realized under a more stringent return policy. These revenue benefits, however, are rarely quantified. Indeed, they are often simply assumed, without any empirical analysis, to outweigh the costs of returns. Recent research by Prof. Guangzhi Shang and his coauthors seeks to improve our understanding of the true costs and benefits of a generous returns policy, specifically in the online retailing context. The researchers collected data from eBay auction sales of a number of consumer electronics items. Since eBay contains multiple listings of identical products sold with different return policies, it provides an ideal dataset for isolating the value of a given policy. Interestingly, the authors find that the value of a full refund policy to consumers may not be as large as one might expect (less than 3% of the product price on average). Of course, this value varies depending on factors including the nature of the product, the reputation of the online seller, and the online shopping experience of the consumer. The full paper, available here, unpacks these nuances and provides a useful perspective on the value of generous return policies.
1 This recurring series provides plain-English summaries of leading academic research in the area of consumer returns.
By Shang, G., Pekgun, P., Ferguson, M., and Galbreth, M., Journal of Operations Management, 2017