Customer Return Rate Evolution

33 Pages Posted: 2 Aug 2021 Last revised: 16 Aug 2022

See all articles by Siham El Kihal

Siham El Kihal

Frankfurt School of Finance & Management

Tulin Erdem

New York University (NYU) - Leonard N. Stern School of Business; New York University (NYU) - Department of Marketing

Christian Schulze

Frankfurt School of Finance & Management

Weiqing Zhang

New York University (NYU) - Leonard N. Stern School of Business

Date Written: July 28, 2021

Abstract

Customer return rate evolution—whether return rates decrease or increase over the course of the customer-firm relationship—is of great economic importance to retailers. Analyzing the complete purchase and return behavior of about 8,000 customers of an online fashion retailer over seven years, we show that the average customer’s return rate increases by 40% from their first to tenth purchase. We investigate how customers’ past behavior explains returns for their current purchase and ultimately return rate evolution. Our results provide evidence for a brand experience effect: A greater number of previously purchased items indicates a decrease in return rate. We also find evidence for a return habit effect: A greater share of previously returned items indicates an increase in return rate. We quantify both effects and show that return habits dominate, resulting in an increase in customer return rates. For managers, return rates evolution has important implications. If managers at the focal retailer ignored customers’ return rate evolution, they would overestimate cumulative customer value after 10 purchases by about 40%.

Keywords: online retailing, customer return rates, customer-retailer relationship, customer value

JEL Classification: M31

Suggested Citation

El Kihal, Siham and Erdem, Tulin and Schulze, Christian and Zhang, Weiqing, Customer Return Rate Evolution (July 28, 2021). Available at SSRN: https://ssrn.com/abstract=3895309 or http://dx.doi.org/10.2139/ssrn.3895309

Siham El Kihal

Frankfurt School of Finance & Management ( email )

Adickesallee 32-34
Frankfurt am Main, 60322
Germany

Tulin Erdem

New York University (NYU) - Leonard N. Stern School of Business ( email )

44 West 4th Street
Suite 9-160
New York, NY NY 10012
United States

New York University (NYU) - Department of Marketing ( email )

Henry Kaufman Ctr
44 W 4 St.
New York, NY
United States

Christian Schulze

Frankfurt School of Finance & Management ( email )

Adickesallee 32-34
Frankfurt am Main, 60322
Germany

HOME PAGE: http://fs.de/schulze

Weiqing Zhang (Contact Author)

New York University (NYU) - Leonard N. Stern School of Business ( email )

44 West 4th Street
Suite 9-160
New York, NY NY 10012
United States

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