How Much Do Online Consumers Really Value Free Product Returns? Evidence from eBay

Journal of Operations Management, Forthcoming

52 Pages Posted: 21 Aug 2017

See all articles by Guangzhi Shang

Guangzhi Shang

Florida State University - College of Business

Pelin Pekgun

University of South Carolina - Department of Management Science

Mark Ferguson

University of South Carolina - Department of Management Science

Michael Galbreth

University of Tennessee, Knoxville - Haslam College of Business

Date Written: July 7, 2017

Abstract

Consumer return rates have been steadily rising in recent years, resulting in growing costs for retailers who must manage the returns process and the disposition of returned products. This cost pressure is driven in part by extremely generous return policies, such as giving consumers a full refund upon return. Interestingly, this common retail practice of full refunds is inconsistent with the recommendations of many analytical models of returns, which nearly always show that a partial refund is optimal. Such inconsistencies between theory and practice might arise when the decision drivers included in the analytical models do not match the decision drivers in practice. It might also be the case that retailers are overly optimistic about the value that consumers assign to a full refund, and thus assume that the value of such a policy outweighs its costs. In this paper, we use data collected from eBay, where identical products are sold with different return policies, to investigate these open questions in the literature. We analyze both the return policy drivers from the retailer's perspective and the return policy value from the consumer's perspective. Our results suggest that the value of a full refund policy to consumers may not be as large as one might expect, and it also exhibits a large heterogeneity across buyers with different levels of online purchase experience. In addition, we provide empirical evidence for what has long been suspected by online retailers --- that a non-refundable forward shipping charge quickly erodes any value that consumers assign to return policies. An inherent limitation of our study is that eBay's environment is signi ficantly different from traditional retail contexts, and eBay buyers may not necessarily belong to the same group that represents the general population of buyers. Nevertheless, our work provides a starting point that can motivate future studies to explore the value of return policies in retail.

Keywords: Consumer Returns, Online Retailing, Marketing-Operations Interface, eBay

Suggested Citation

Shang, Guangzhi and Pekgun, Pelin and Ferguson, Mark and Galbreth, Michael, How Much Do Online Consumers Really Value Free Product Returns? Evidence from eBay (July 7, 2017). Journal of Operations Management, Forthcoming. Available at SSRN: https://ssrn.com/abstract=3020380

Guangzhi Shang

Florida State University - College of Business ( email )

423 Rovetta Business Building
Tallahassee, FL 32306-1110
United States

Pelin Pekgun (Contact Author)

University of South Carolina - Department of Management Science ( email )

United States

Mark Ferguson

University of South Carolina - Department of Management Science ( email )

United States

Michael Galbreth

University of Tennessee, Knoxville - Haslam College of Business ( email )

453 Haslam Business Building
Knoxville, TN 37996-4140
United States

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