MIT Sloan Management Review

Marketing

 

Returns Policies: Make Money by Making Good

By V. Padmanabhan and I.P.L. Png

October 15, 1995

ALTHOUGH RETURNS POLICIES HAVE BEEN WIDELY USED FOR MANY YEARS, THEY CONTINUE TO BE A SOURCE OF CONTROVERSY. THE AUTHORS present a framework that explains when and how to adopt returns policies. They analyze the benefits and costs of accepting returns from distributors, and also compare returns policies to alternative ways of coordinating the distribution channel.

A returns policy for excess inventory is a commitment by a manufacturer, service provider, or distributor upstream to accept products from a downstream channel member. The format of returns policies varies in and across industries. The most generous policy promises to refund the full wholesale price for all returned products, while less generous policies offer credits against future orders. A partial returns policy gives only partial credit or refund. Manufacturers and distributors of a wide range of products have long allowed retailers to return excess inventory. In 1932, Viking Press became the first book publisher to accept returns. By then, magazines already had returns policies.

In the early 1980s, Parker Brothers, which was so successful with its “Monopoly’’ board game, attempted to enter the market for children’s books. The project failed, partly because Parker Brothers refused to accept returns from retailers.1 Currently, college bookstores return about 40 percent of all new textbooks, a proportion that has grown steadily over time.2 Consequently, the cost of returns to publishers has been rising, leading them to tighten their returns policies.3 The National Association of College Stores has formed a Returns Issue Taskforce to address the issue of returns policies. Despite their use in many industries for years, returns policies continue to be controversial.

Today, returns policies are common in the... To read the complete article, login or sign-up using the form below.

 
 

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