Having a lenient return policy is the status quo of the retail sector. However, return hassle and shipping costs are still different across companies. On one end are those implementing a completely hassle-free and cost-free return program, such as Costco, Nordstrom, and Zappos. On the other end are those implementing an equity-based return program, where the cost of return shipping is born by the party who is determined to be “at fault”. Examples includes Amazon, H&M, and L.L. Bean. From a return prevention perspective, the totally free program needs to put the entire emphasize on the pre-purchase stage through efforts such as virtual fitting (online) and store assistance (bricks-and- mortar). The equity-based program can also rely on return costs and hassle to reduce returns. More broadly speaking, when deciding between the two types of programs, one should consider the following aspects:
1. Since a cost-free return program stresses the long-term customer experience, how much does it actually increase the Customer Lifetime Value (CLV)?
2. How effective are the pre-purchase return reduction measures?
3. What is the typical condition of returns and how much salvage value can we get?
This recurring series provides plain-English summaries of leading academic research in the area of consumer returns. It is co-produced by Mark Ferguson (Univ. of South Carolina), Michael Galbreth (Univ. of South Carolina), and Guangzhi Shang (Florida State Univ.).
Guangzhi Shang, Michael Galbreth, and Mark Ferguson