Free Returns Pay Off For Online Retailers
CREDIT: Return Package Image via Shutterstock
Offering free shipping on returned items can go a long way in increasing future sales for companies. Companies that offer free shipping on returns can see between a 58 and 357 percent increase in sales in the next two years, new research suggests.
On the other hand, the researchers also found that purchases decreased between 74 and 100 percent at companies where consumers had to pay for shipping on returns. Offering free returns, however, does not come without a cost for retailers. For example, consumer electronics returns cost manufacturers $17 billion last year, an increase of 21 percent from 2007.
Overall, consumers said they would continue to buy from retailers that offered free shipping because it eliminated the regret or anticipation of regret they have with purchases. Respondents also said they feel that retailers should absorb the cost of returns as part of the cost of doing business.
"The really dominant driving characteristic is how much do I regret having spent $7 on return shipping in the past, and is it really worth it to risk paying that money again in the future?" said Amanda Bower, lead author and professor of business administration and marketing at Washington and Lee University's Williams School of Commerce, Economics and Politics. “In contrast, free returns are similar to the saying, 'What would you do if you knew you couldn’t fail?'"
Bower suggests online retailers look beyond the initial costs of shipping to the future benefits associated with offering free shipping on returns when implementing return policies.
"It's interesting that for the two years after they returned a product, not one of the customers in our study returned another product," said Bower who conducted the research with James Maxham of the University of Virginia. "It's fairly easy to quickly find people who are abusing the system. But punishing everybody because of a couple of people is not good for the retailer in the long run. Retailers need to have a firm grip on reality, on how consumers are actually going to act, not on what retailers think consumers should do or what they consider fair."
The research was based on field studies conducted with two leading online retailers over 49 months. The researcher used surveys and consumer spending data to find the information. The study appears in the September issue of the Journal of Marketing.