Marketers and sellers hate product returns, but smart companies aren’t passively accepting them as bitter pills to be swallowed. They’re managing product-return policies to maximize future profits.
Many companies see customers’ product returns as a major inconvenience and an eroder of profits. But
recent studies have begun illuminating the potential benefits of allowing customers to return products
with impunity. This research finds that when a company has a lenient product-return policy, which
allows customers to return almost any product at any time, customers are more willing to make other
purchases, thereby raising the company’s revenues from sales. The authors’ own research extended these studies by exploring the trade-offs between the costs of product returns–particularly when customers deem such experiences satisfactory–and their long-term benefits to the company. Analyzing six years of purchase, product-return and marketing-communications data from “Company 1″–a large national catalog retailer that sells apparel and accessories–they confirmed that ignoring product return behavior, or even trying to discourage it directly by not marketing to customers who return
products (such as by not sending them catalogs), would be a mistake. In fact, managers should embrace
customers’ product-return behavior and offer them a satisfactory experience.
In a field experiment with a second catalog retailer, “Company 2,” which sells footwear, apparel and
other accessories through the Internet and mail-order catalogs, the authors found that under a lenient
product-return policy, customers’ purchases, induced profits and referrals were greater than under a
strict policy (which discourages and limits product returns). These measures could be raised even further through a catalog-mailing strategy that takes into account the expected future profits from each
customer and the relationship between purchases and product-return behavior–i.e., through an optimal
allocation strategy.
3 Comments On: Can Product Returns Make You Money?
This article is an eye opener. it makes a great deal of sense to note that a company with a “satisfactory product return can provide another touch point for building a successful buyer-seller relationship.” However, from my personal observation, the collorary argument “…benefits of allowing customers to return products with impunity” seems to more often than not, hold sway. Little wonder why the term Jay Customer was introduced into the management literature.
I have, nonetheless, also written about a new jargon in the management literature “jaymarketer” in my description of Egg Card’s decision to fire over 160,000 of its “unprofitable” customers in the UK – where my arguments on the potential loss of business for these kinds of firms was underlined. Perhaps the UK budget hotel chain, Travelodge, may also take a cue from this article for refusing to refund my booking which was for reasons beyond my control – the volcanic ash disruption of air travel in Europe.
Certainly in the UK there is a law that expressedly permits you to return items for any reason whatsoever for upto 14 days after purchase. I’ve known people buy an item of clothing for an event, wear it to the event and then return it!
The law here is somewhat being abused I would suggest. How it could be tightened up but still allow genuine returns though is another question and a very difficult one at that
Here in the states returns usually have to 14-30 days after purchase with original receipt when returning. I have also know people to go buy some extravagant dress for a wedding or social event wear the dress then return it after wearing it, to me that is abuse of some sort.