How to make consumers spend 158% to 457% more? Offer them free returns

This is the result of recent study published in the Journal of Marketing. Unlike –too- many research, the results come from a longitudinal study (that’s to say a study that observes a phenomenon on a long period of time) and that is based on primary data (that’s to say, data the reflects without bias the actual behavior of the population observed). With this study the authors contribute to the important research stream on customer satisfaction and customer loyalty and help craft new marketing strategies.

With this study the authors contradict the current trend followed by some e-tailers that require customers to pay to return products when retailers determine that customers are at fault.

As the authors write: “Contrary to retailer assumptions, neither the positive consequences of free returns nor the negative consequences of fee returns were reversed when customer perceptions of fairness were taken into account. Depending on the locus and extent of blame, customers who paid for their own return decreased their postreturn spending at that retailer 75%–100% by the end of two years. In contrast, returns that were free to the consumer resulted in postreturn customer spending that was 158%–457% of prereturn spending. The findings suggest that online retailers should either institute a policy of free product returns or, at a minimum, examine their customer data to determine their customers’ responses to fee returns”.

This conclusion is however quickly drawn and neglects to take other aspects into account. It’s well know that this policy of free returns has turned e-tailers like Zalando into successful businesses. At least that’s what you think.

With 50% of products purchased being returned, the supply-chain costs (and in particular the shipping costs) are a profitability killer (see for instance this well written blog post on Zalando’s profitability). Zalando has reached the 1 billion mark but still loses some 20M€. The question remains whether you want to focus on revenues or on profits. The path is definitely not the same.