Return Policies Affect Consumer Behavior

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When retailers give consumers longer periods in which to return products they purchased, they actually reduce consumers' tendency to make returns, according to researchers at the University of Texas's campuses in Dallas and Arlington.

While this might seem contradictory, one of the researchers, Ryan Freling, a doctoral student at UT-Dallas’s Naveen Jindal School of Management, explains it this way: "Perhaps, because the urgency to make a timely return has been reduced and consumers sit with the product for a while, that leads to an endowment effect where the utility of actually having this item outweighs the utility of making the return."

Or it could simply be a matter of consumers forgetting about the product, thus reducing the importance of returning it relative to other commitments in their lives, he says.

The research—which Freling conducted with Narayan Janakiraman, a professor of marketing at UT-Arlington, and doctoral candidate Holly Syrdal—also found that different return policies have different effects on consumers. This, Freling says, challenges the assumption that all return policies affect purchases and returns in similar ways.

More lenient return policies, the researchers found, actually led to better outcomes for the retailers and companies involved.

The research identified five considerations that shape how lenient consumers perceive a return policy to be: time, money, effort, scope, and exchange. First, retailers that offer longer lengths of time for returns are considered more lenient. Second, more lenient policies provide refunds of the full purchase price, while stricter policies refund only a portion of the original price. The effort metric gauges how difficult a store makes it for consumers to return products, by requiring original receipts, tags, or product packaging, for example. Fourth, some retailers can restrict which items customers can return. And finally, some retailers offer only store credit or product exchanges, not cash refunds. Policies that allow for cash refunds are considered more lenient.

"We all understand from a firm's perspective that they want to encourage the purchase—that's intuitive," Freling says. Returns, he also notes, cost those firms in time, money, and resources, so it's not surprising that they would want to minimize the amount of returns.

"It was interesting to see that perhaps these different dimensions might be used strategically by the firm to either increase purchases or limit returns," he says.

Businesses can influence these return policy considerations to their advantage. "A key thing for businesses to realize is that they have to know their product category, and they have to understand their customers," he says. "They might manipulate [the dimensions of the return policies], depending on their understanding of the product category they compete in and the consumers that they're targeting."

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