While you might think you're losing a customer when an item is returned, the opposite could actually be happening depending on how easy the process is, new research finds.
Creating positive return experiences can result in valuable long-term customers whose contributions far outweigh the costs associated with those initial returns, according to a new study in the Journal of Marketing Research.
"Product returns are no small part of the firm-customer exchange process, currently costing firms about $100 billion annually," the study's authors wrote. "However, these same returns create long-term value because customers who feel there is little risk in making the wrong purchase keep coming back."
To help determine the extent to which product returns benefit businesses, researchers conducted a large-scale experiment with 26,000 customers over six months from an online retailer.
For the experiment, customers were divided into several groups that had the return process marketed to them differently. The control group received no marketing effort, several groups received traditional marketing approaches to product-returning customers, and a model group had a marketing tactic that factored in both the consumer's positive attitude toward returns, as well as the cost to the company of those returns. [Free Returns Pay Off For Online Retailers ]
The results showed that marketing efforts toward the model group achieved the highest profits. Researchers discovered that when managers took into consideration not only the cost of the return process but the positive effect of returns on customers, and targeted marketing accordingly, they brought in $1.8 million, compared with the control group's $1.22 million.
The study's authors said that by paying attention to product returns, instead of ignoring them or simply accepting them as a necessary cost, businesses were better able to strategize ways to reduce the cost of the return process overall.
"Retailers who do not consider product returns in their measure of customer value (even simply as a cost that needs to be managed) are missing out on profits they could be obtaining by understanding and allocating resources to product-returning customers," the researchers wrote. "Paying attention to these customers pays off."
The study was authored by Andrew Petersen, an assistant professor of marketing at the University of North Carolina, and V. Kumar, the Richard and Susan Lenny Distinguished Chair Professor in Marketing at Georgia State University.