News • 06.05.2020

Study on firms' return policies offline and online

Guidance on pricing, returns, refunds

Red sign saying return to sender; copyright: PantherMedia/roxanabalint...
Source: PantherMedia/roxanabalint

Because customers who shop online cannot try on their purchases, a third of all Internet sales get returned. But handling these returns is costly, giving retailers that have both physical stores and digital sales a clear advantage over retailers that operate only online.

A new study, conducted by researchers at Carnegie Mellon University and the University of Washington, examined the decisions around the pricing and return policies of a retailer with both stores and online sales to help explain why some firms opt to fully refund customers for their returns while others charge a fee for online returns. The findings offer guidance to retailers about pricing and policies on returns and refunds.

"Our study can help firms with stores and online sales decide when to offer full refunds or charge a fee for online returns," says Soo-Haeng Cho, Associate Professor of Operations Management at Carnegie Mellon University's Tepper School of Business, who coauthored the study. "Our work shows that firms should consider offering full refunds whenever they can salvage online returns at mild discounts or if most of their customers choose to visit their stores before purchasing. They may also want to charge a fee for online returns to push customers toward using free in-store returns."

Customer’s choice: in-store or online return

Researchers examined a retailer that sold a product through two channels – in stores and online – to customers who faced uncertainty about the valuation of the product – that is, they didn't know how much they would like the product. The customers differed in how they resolved that uncertainty – some evaluated the product in person at a store before deciding to purchase it while others bought the product online with the option of returning it if it did not fit. The cost of a product was the same whether it was purchased in the store or online, and the firm allowed free returns to its stores, but charged a fee for some products returned by mail (referred to as online returns).

Level of refunds for returns

The study found that when customers returned products online, the optimal refund given by a firm with both store and online sales was more generous than refunds given by firms that sell their products only online or only in a store. The refunds were often larger than the salvage value (how much the firm can get from the product after it is returned, either by selling it again or by recycling it) and may even have been a full refund. The findings help explain why some firms with both stores and online sales choose to offer full refunds while others charge a fee for online returns.

Specifically, the study found that firms with both physical stores and online sales that have good salvage partners (companies that will buy returned items for a reasonable price) for online returns (e.g., Nordstrom and firms like it that own their own outlet stores) and those with more customers who use their physical stores (e.g., Macy's) may offer full refunds. Similarly, the study found that firms have incentives to offer full refunds for products that customers are more likely to inspect in store (e.g., Express for footwear).

The authors suggest that firms with a significant network of stores and better in-store salvage opportunities (e.g., J.C. Penney) might be better off charging a fee for online returns to encourage customers to return items in stores. But they note that firms with both stores and online sales should be cautious in making the return process more convenient and improving accessibility to its stores because these seemingly beneficial policies, when combined with a policy offering partial refunds, could undermine firms' overall profit.

Source: Carnegie Mellon University

related articles:

popular articles:

Thumbnail-Photo: Shopping in social media streams?
16.11.2020   #e-commerce #app

Shopping in social media streams?

Further steps towards social commerce

The fact that retailers and brands offer their products online where consumers spend their free time – on social media channels as well as on image and video portals – is nothing new. There have been many advertising campaigns on these ...

Thumbnail-Photo: Inviting customers to learn new skills in virtual classes...
21.08.2020   #digital marketing #online marketing

Inviting customers to learn new skills in virtual classes

Whole Foods Market launches “Home Ec 365” with modernized lessons in #adulting

Whole Foods Market launched Home Ec 365, a digital curriculum designed to modernize the fundamentals of home economics. Through a series of virtual classes, each with a contemporary take on mastering everyday home tasks and need-to-know life skills, ...

Thumbnail-Photo: Come together: local retailers connect with local customers...
15.09.2020   #brick and mortar retail #customer relationship management

Come together: local retailers connect with local customers

The online platform Ladenfreun.de connects local retailers with potential customers. The common denominator: A product.

How can you bridge the gap and connect online retail to pedestrian zones? A Nuremberg startup wondered how this could be accomplished and came up with a solution: Ladenfreun.de. In this interview, founder Matthias Hueber talks about the idea behind ...

Thumbnail-Photo: Boom time for bicycle retailers
28.09.2020   #online trading #customer satisfaction

Boom time for bicycle retailers

What is the recipe for success? iXtenso visited three bicycle retailers

What does it take to be successful during these growth times? iXtenso looks at three very different retailers – from online, to offline and all that lies between. Find out more in our exclusive video! ...

Thumbnail-Photo: Spotlight on ... city centre
15.09.2020  

Spotlight on ... city centre

Learn more about the challenges that city centres are currently facing in our focus topic

What attracts customers to city centres these days? You can find possible answers to all aspects of city marketing with us. ...

Thumbnail-Photo: Get your business ready for E-commerce Berlin Expo 2021!...
08.10.2020   #e-commerce #digital marketing

Get your business ready for E-commerce Berlin Expo 2021!

Meeting point for all major decision-makers in the e-commerce sector

E-commerce Berlin Expo is the biggest pure-play e-commerce event in the (tech) capital city of Germany. Over 9,000 visitors and 200 exhibitors are expected every year. E-commerce Expo views itself as a community and a meeting point for all ...

Thumbnail-Photo: Interior design and high fashion
14.09.2020   #design #marketing

Interior design and high fashion

New York Fashion Week is going home ... with Lowe's

At a time when home has become the new epicenter of personal style, Lowe's and New York Fashion Week: The Shows have come together to reimagine one of fashion's most iconic moments, transporting high fashion from the runway to the ...

Thumbnail-Photo: 4 tips on how to handle customer complaints
13.08.2020   #consulting #customer satisfaction

4 tips on how to handle customer complaints

How you can effectively respond to negative reviews and use them to be a benefit to your company

Most retailers don’t like customer complaints. Plus, they also mean extra work. Yet ignoring complaints is not a great long-term strategy because any bad customer experience can haunt your brand if it becomes public. That’s why retailers ...

Thumbnail-Photo: Sustainability is surviving COVID-19
27.07.2020   #sustainability #coronavirus

Sustainability is surviving COVID-19

Trends and consumer demographics for sustainable products and brands

The NYU Stern Center for Sustainable Business and IRI® published the results of new research examining consumer purchases of sustainability-marketed consumer packaged goods in the US and taking a closer look at the top 10 states in terms of per ...

Thumbnail-Photo: Event: E-commerce Berlin Expo 2021
28.08.2020   #online trading #e-commerce

Event: E-commerce Berlin Expo 2021

E-commerce Berlin Expo is the biggest pure-play e-commerce event in the (tech) capital city of Germany. Over 9,000 visitors and 200 exhibitors are expected every year.

E-commerce Expo views itself as a community and a meeting point for all major decision-makers in the e-commerce sector. We bring together leaders in the e-commerce industry to offer online sellers and retailers the opportunity to develop their ...