Where Should I Focus My Return Reduction Efforts? Empirical Guidance for Retailers

Abstract

ABSTRACT Owing to the generous refund policy ubiquitous among today's retailers, returns are prevalent and expensive to manage. Implementing buyer assistance programs and adjusting return time windows are two common methods that retailers use to actively influence return rates. A buyer assistance program can improve consumer understanding and reduce returns, but to be effective it must be focused on the products that are most likely to be returned. Managing return rates by adjusting return time windows, on the other hand, requires an understanding of the time dimension of returns, a topic for which there is scant guidance in the literature. Using a large dataset of consumer electronics purchases and returns for a major U.S. retailer, our study contributes to the research and practice of retail operations by: (i) providing new insights into the drivers of product returns and (ii) analyzing the time length of consumers' product trial, which can inform return time window decisions. We show that both product maturity (where a product stands in its life‐cycle) and variety (the number of competing alternatives) are negatively associated with the probability of a return. By separating pure returns and exchanges, we further demonstrate that while more variety considerably reduces the former, it only marginally increases the latter. In addition, we find that consumers with more past returns not only have a higher probability of future returns but also tend to make late returns, with both factors increasing a retailer's cost to serve them. Finally, our analysis of the time to return shows that retailers may benefit from customizing their return time windows across different product categories, as well as enlarging the window during holidays.

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