Returns and exchanges can be a headache for both consumers and retailers. But a new study by researchers at the University of Texas in Dallas confirms the commonly held belief that lenient return policies have a positive effect on consumers' purchasing decisions.
"In general, firms use return policies to increase purchases but don't want to increase returns, which are costly. But all return policies are not the same," said doctoral candidate Ryan Freling.
Overall, lenient return policies led to increased purchases, the study found. The researchers also found a positive effect -- smaller, but still significant -- of leniency on the number of returns.
For example, leniency in scope increased returns.
"In the pre-purchase stage, consumers might think about the costs and benefits of making a purchase," Freling said. "If the return policy is lenient in scope -- if a sale item can be returned -- a consumer might say, 'Oh this is on sale. It seems like a good value. I'll buy it, and if it's not the right color or fit, I'll return it.'"
Depends on objectives
Freling said the study shows that return policy leniency should depend on the retailer's objectives. If a retailer wants to stimulate purchases, offering more lenient monetary policies and low-effort policies may be effective.
If a retailer wishes to curb returns, longer deadlines to make a return would be more effective. The study found that leniency in time reduced return rates. Freling said a possible explanation is the endowment effect, which suggests that the longer consumers possess a product, the more attached to it they become and less likely they are to return it.
"The cost of dealing with returns affects the bottom line," he said. "You want to look at the different dimensions of a return policy, because you may be able to manipulate the policy to achieve your goals."
The results of the study were published online in the Journal of Retailing.