It is the holiday shopping season so it will soon be the post-holiday returning season. Dealing with returns imposes serious costs on retailers. What are steps firms can take to control how customer return products? Is a Big Brother approach reasonable?
While the Children’s Place only requires an ID for a return without a receipt, a growing number of stores, including Victoria’s Secret, require that you let them scan your ID to return an item with or without a receipt.
According to the National Retail Federation, 62 percent of retailers have ID requirements. Among those who have similar policies for returns are The Finish Line, Home Depot, Target and more.
So where does your information go? Likely it’s being stored on The Retail Equation, a service which tracks how often you bring stuff back and identifies habitual returners. …
Return items too frequently, and you may lose your right to bring back your purchases anywhere.
This is from ConsumerWatch: Stores Requiring ID, Tracking To Prevent Repeated Returns (KCBS, Nov 20). Here is the full video so you can get your outrage and paranoia really racing.
Before we get too far into this, it is worth noting just how The Retail Equation says their system works (from their FAQ).
What Factors Does Verify Return Authorization Use to Determine if a Retailer Should Accept a Consumer’s Return?
This varies from retailer to retailer. The factors that Verify-2 may use for a given retailer include:
- The frequency of returns
- Return dollar amounts
- Whether the return is receipted or non-receipted
- Purchase history
Verify-2 does NOT use any of the following factors in authorizing returns:
- Age
- Gender
- Race
- Nationality
- Physical characteristics
- Marital status
… Note that while a Return Activity Report shows all of a consumer’s return transactions at participating retailers, Verify-2 uses only the transactions for the retailer where a consumer is making a return to authorize the return.
So at a minimum, the KCBS report is a little exaggerated. One’s aggressive pursuit of returns at one store doesn’t come back to bite you three months later at a different firm. Rather each Retail Equation client is implementing its own policy with Retail Client providing the technology to track customers who use cash or frequent multiple locations of a chain store.
But what if one’s return behavior did follow you? This is not unprecedented. Your credit history spans your bank account to your car insurance and is built up from tracking what you do across a number of firms and a number of markets.
There are, of course, some differences. Consumers can easily understand why American Express would want to know whether they pay their car loan on time before giving them a credit card. The link between one’s return behavior at Best Buy and The Gap seems a little more tenuous. Consumers can also see how one can just stop paying one’s car loan. I have to admit that I am a little fuzzy on just how one can make big bucks through fraudulent returns. Finally, credit ratings exist in part to evaluate the impact of shocks that are somewhat exogenous to the consumer (e.g., losing one’s job). Return behavior is not subject to the same kind of shocks but there is the risk that innocent behavior gets labeled as fraudulent.
Note that this tracking of returns is easier for on-line sellers — where all sales leave a paper (OK, electronic) trail. But how easy should it be to send stuff back? And in particular should it be free? That is the question asked in a recent NPR story (Is Charging Customers For Returns Bad Business?, Nov 26). Now as a consumer, one would prefer free returns. If that sweater doesn’t fit right or is just too itchy, we want to send it back gratis.
Of course, shipping the sweater back and processing returns in general imposes real costs. And to the extent that customers have discretion in whether to return an item (or to think twice before ordering a medium and a large to see which fits better), a little bit of friction to slow down returns might be a good thing. But that looks at just one transaction. What happens if one looks at the firm’s relationship with the customer over time?
HAUSMAN: Amanda Bower teaches business at Washington and Lee University. She did the math and decided to stop buying from companies that didn’t cover return shipping. …
Bower wondered if costly return policies were ultimately bad for business, so she and a co-author tracked four years of purchases at two major online companies and surveyed thousands of customers.
What they discovered could change the rules of online sales. Buyers who returned merchandise at no charge were far more likely to come back.
BOWER: Those consumers increased their purchases from about 50 percent to about 350 percent, so you were seeing thousands of dollars all because the company had sprung for a $15 return.
HAUSMAN: But when customers had to pay for a return, sales fell sharply. Bower says companies should see free return shipping as an investment that builds trust with customers and pays off with increased long-term sales.
If you want to see the full academic paper, go here. This is an interesting observation. As I have noted before, the possibility of returning a product bundles an option with the physical item. The hassle of actually returning the thing (whether in terms of time or money) is the cost of exercising that option. How you price that option then impacts the price one can charge for the good. There have been several papers written on this theme (here’s one from some Kellogg colleagues). However, they usually look at single period setting — that is, how should I price if this is the last time I deal with this customer. This research suggests that such an approach is nearsighted and that one has to think about managing pricing and returns over several interactions with customers.
