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View from Academia

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

Reverse Logistics Magazine, Edition 94

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In many consumer-facing companies with a sales-oriented culture, managing returns could be a frustrating job. One part of the challenge comes from dealing with unhappy customers. The other part, however, comes from the internal perception that despite being an integral component of the business, returns management is merely a cost minimization task. It is thus treated separately from the more glorious sales tasks. This is unfortunate, because experienced return managers often discover anecdotes that returners sometimes have a higher total long-run relationship value than non-returners. A stream of research from the academic literature shows that this observation is not merely anecdotal, but rather systematic. A 2012 study by Prof. Stanley E. Griffis (Michigan State University) and colleagues represents one of the pioneering works in this domain.

Their study collects data from a medium-sized online retailer selling educational materials such as books and magazines. They track new customers’ purchase and return behavior for an entire year. Based on whether these customers have returned their initial purchases or not, they are categorized into the return-prone and the non-returner groups. The difference in the subsequent, future purchase pattern reveals that return-prone customers are likely to order more frequently, purchase more items in a single order, and buy more expensive items. All three factors contribute to a higher total relationship value. Yet, not all customers who have returned show a favorable behavioral change. Speed of return processing is a key differentiating factor. Those experienced a quick turnaround time show much more pronounced bumps in the three repurchase factors. On the contrary, returns with a significant delay might wipe out the above benefits all together. For managers in the “field”, these results could also fit into the familiar service recovery concept. The fact that customers need to make a return means some aspects of the product do not fit, which resembles a service failure. Although it sounds negative at first, a solid recovery from this failure often makes customers more loyal to the service provider than not experiencing the failure at all. For returns, a solid recovery means a quick, smooth return handling process. Further empirical details from this study can be found below.

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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