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View from Academia (1)

View from Academia (1)

by Mark Ferguson, Guangzhi Shang, and Michael Galbreth , , Univ of South Carolina,Florida State Univ, Univ of Tennessee

Reverse Logistics Magazine, Edition 92

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Retailers can adjust the leniency of their return policies across multiple dimensions – restocking fees, exchange availability, hassle requirements, and others. Of the many possible levers to adjust leniency, the amount of time during which returns are allowed (i.e. the return time window) is often one of the first approaches considered by retailers. For example, a common retail strategy is to increase the return time window during the holiday shopping season, presumably in order to reduce the likelihood of consumer regret and thus stimulate sales. However, despite the popularity of these strategies in practice, there has been little academic research to empirically examine and quantify the benefits of adjusting return time windows.

Recently, this gap in the academic research has begun to be addressed. One intriguing study was conducted by Shashank Rao of Auburn University, along with his coauthors, and published in the April 2018 issue of the academic journal Decision Sciences. In this study, the researchers implemented a carefully designed field experiment, conducted within the women’s purses category on EBay, to assess the value that consumers place on various levels of return time leniency. They find strong evidence that consumers assign more value to a product (and hence retailers can charge higher prices) as the return time window is lengthened. However, there is a caveat – this effect is subject to diminishing returns, with the biggest impact coming when a retailer relaxes a very strict window. Of course, a more lenient returns window will result in more returns, but this research suggests that the cost of those additional returns might be offset, at least to some extent, by increased pricing power for the retailer.

The above is a condensed summary of:

(1) 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.).

Rao, S., Lee, K.B., Connelly, B., and Iyengar, D. (2018) “Return Time Leniency in Online Retail: A Signaling Theory Perspective on Buying Outcomes” Decision Sciences, 49(2), 275-305
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