Free return service and longer approval period generate more profits for online retailers

Many online customers return products because they are disappointed with their purchase. In the Netherlands, up to 30% of goods purchased online are returned, with costs being paid by the retailer. Alec Minnema conducted research into how retailers can manage and influence returns in order to increase their profits. He concludes that a free returns policy without additional conditions encourages customers to buy more. Furthermore, customers are less likely to return a product if the returns policy includes a longer approval period. Minnema will defend his PhD thesis on 26 January.

In his thesis, Minnema presents an overview of the causes and effects of returning online purchases, providing new information about the relationship between retailers and customers. Retailers can use this information to generate extra customer value and profits. The effects of marketing instruments extend beyond the purchase, says Minnema. It is important not only to examine the effect on the likelihood of purchasing, but also the effect on the likelihood of returning an item, as returns can offset retailers’ profits. At present, most retailers ignore information about customer returns. Using this information could increase their profits by approximately 20%, says Minnema.

Habit

He also concludes that customers who are satisfied with the returns process are more likely to buy from the retailer again, because they perceive a lower risk. In addition, returning goods can be a habit, explains Minnema: some customers regularly return items while others never do. Returning purchases also has an impact on non-transactional customer behaviour. If customers are happy about the returns process, they will recommend the retailers to friends and acquaintances. This creates added value for the retailer.

More information

Alec Minnema conducted his research within the Marketing programme of the Faculty of Economics and Business. He now works as a Data Science Consultant at Ordina.

• Minnema's profile on LinkedIn
• Previous press release: How 5-star online customer reviews can backfire

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