Free Shipping and Product Returns

Tuck School of Business Working Paper No. 2864019

Edlira Shehu; Dominik Papies; Scott Neslin (2020), Free Shipping Promotions and Product Returns, Journal of Marketing Research, https://doi.org/10.1177/0022243720921812.

86 Pages Posted: 4 Nov 2016 Last revised: 15 May 2020

See all articles by Edlira Shehu

Edlira Shehu

Copenhagen Business School

Dominik Papies

University of Tuebingen - Faculty of Economics and Social Sciences

Scott Neslin

Dartmouth College - Tuck School of Business

Date Written: November 3, 2016

Abstract

Free shipping promotions have become popular among online retailers. However, little is known about their influence on consumers’ purchases, return behavior, and ultimately, firm profit. The authors propose that free shipping promotions encourage customers to make riskier purchases, leading to more product returns. They estimate the impact of these promotions on purchase incidence, high-risk and low-risk spend, and return share. The results show that free shipping promotions increase expenditure for high-risk products, increasing their share of the consumer’s market basket, and hence increasing the overall return rate. This is validated in a field experiment. A field test and an online lab experiment analyze the mechanism linking free shipping and returns. They suggest that the free shipping effect occurs via consumers’ perceptions that free shipping serves as a risk premium compensating them for potential returns, and through positive affect generated by the promotion. A simulation shows that for the focal firm, free shipping promotions increase net sales volume, but higher product returns and lost shipping revenue render these promotions unprofitable.

Keywords: free shipping, product returns, ecommerce, promotions

Suggested Citation

Shehu, Edlira and Papies, Dominik and Neslin, Scott, Free Shipping and Product Returns (November 3, 2016). Tuck School of Business Working Paper No. 2864019, Edlira Shehu; Dominik Papies; Scott Neslin (2020), Free Shipping Promotions and Product Returns, Journal of Marketing Research, https://doi.org/10.1177/0022243720921812., Available at SSRN: https://ssrn.com/abstract=2864019 or http://dx.doi.org/10.2139/ssrn.2864019

Edlira Shehu (Contact Author)

Copenhagen Business School ( email )

Denmark

Dominik Papies

University of Tuebingen - Faculty of Economics and Social Sciences ( email )

Mohlstrasse 36
Tuebingen, Baden-Wuerttemberg 72074
Germany

Scott Neslin

Dartmouth College - Tuck School of Business ( email )

Hanover, NH 03755
United States

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