Measuring customer value? Don't overlook product returns

April 29, 2015, American Marketing Association

When trying to identify "good" customers, managers often ignore those who return products, or might even consider those customers non-ideal, decreasing the resources devoted to them. In the long term, however, satisfactory product return experiences can actually create a valuable long-term customer whose contributions far outweigh the associated costs, 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," write authors J. Andrew Petersen (University of North Carolina) and V. Kumar (Georgia State University). "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 determine the extent to which product returns could benefit a firm, the authors conducted a large-scale with 26,000 customers over six months from an online retailer. Customers were divided into five groups: a that received no marketing effort whatsoever, several groups that received traditional approaches to product-returning customers, and finally the model group, which factored in both the consumer's positive attitude toward returns, as well as the cost to the company of those returns. The study directed these five marketing strategies toward customers for three months, and then observed the customers for an additional three months.

The results showed that the maximum profit during the field experiment was achieved, hands down, in the model group. When 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 to the control group's $1.22 million. By paying attention to the product returns instead of ignoring them or swallowing them whole as a necessary cost, managers were 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. Paying attention to these customers pays off," the authors conclude.

Explore further: Too many returns this holiday? How loyal customers can hurt sales

More information: J. Andrew Petersen and V. Kumar. "Perceived Risk, Product Returns, and Optimal Resource Allocation: Evidence from a Field Experiment." Forthcoming in the Journal of Marketing Research.

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not rated yet Apr 29, 2015
A lot of tech stuff seems to have been passed 'fit for market' by besotted focus groups. The lack of 'joined up thinking' can be quite scary...

Question then becomes 'Does this brand LEARN from mistakes ?'

Some churn staff too fast, others cannot accept that unhappy customers have worthy opinions...

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