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The impact of free returns on online purchase behavior: Evidence from an intervention at an online retailer
Stockholm University, Faculty of Social Sciences, Stockholm Business School.
Number of Authors: 42021 (English)In: Journal of Operations Management, ISSN 0272-6963, E-ISSN 1873-1317, Vol. 67, no 4, p. 511-555Article in journal (Refereed) Published
Abstract [en]

Whether free returns create economic value for online retailers is a question of increasing importance. Using order-level data from an online fashion retailer in Sweden, we investigate the introduction of free returns for customers in Denmark starting November 1, 2017, but not for customers in Sweden, Norway, Finland, France, Germany, and the rest of Europe (the control group). Using difference-in-differences, with and without sample matching, the introduction of free returns increased the order bill by 54.95 Swedish Krona (SEK) (9.15%), product variety per order by 0.057 (8.74%), gross margin per order by 29.90 SEK (9.71%), and returns by 0.195 items per order (7.86%). This likelihood of increased returns was generally similar across different product categories. The findings are robust to parallel trends, event studies, placebo effects, alternative control groups (with Scandinavian countries, Sweden and Norway), country-time trends, and correlations between outcome variables. Based on back-of-the-envelope calculations, the cost of offering free returns is greater than the increase in gross profit driven by free returns. Though our results show that free returns may not be of short-term benefit, retailers must also consider the long-term strategic implications of free returns.

Place, publisher, year, edition, pages
2021. Vol. 67, no 4, p. 511-555
Keywords [en]
customer behavior, free returns, online retailing, return policy
National Category
Economics and Business
Identifiers
URN: urn:nbn:se:su:diva-192202DOI: 10.1002/joom.1135ISI: 000624573600001OAI: oai:DiVA.org:su-192202DiVA, id: diva2:1544293
Available from: 2021-04-14 Created: 2021-04-14 Last updated: 2022-12-08Bibliographically approved
In thesis
1. Empirical Essays on Retail Logistics and Customer Behavior
Open this publication in new window or tab >>Empirical Essays on Retail Logistics and Customer Behavior
2023 (English)Doctoral thesis, comprehensive summary (Other academic)
Abstract [en]

Retail logistics is responsible for making products available to end customers. Traditionally, this was facilitated through a network of brick and mortar stores that customers visit to buy items. However, the advent of online and omnichannel retail started to challenge this established system. Modern-day customers increasingly buy a product not solely for its features but also for how, and how fast, the item is delivered and/or returned. Such customer behavior shows that retail logistics often is the decisive factor when searching for, purchasing, and using goods and services. Consequently, logistics performance has become increasingly important for marketing performance. This is in stark contrast to logistics (often) outdated characterization as a back-office operation focusing on cost-effectiveness and lead-time reductions. To overcome the prevailing cost focus, more knowledge is needed that is based on the incorporation of customer behavior into operations management models to demonstrate to retailers the elevated role of logistics in retail today. Therefore, the overall purpose of this dissertation is to contribute to a better understanding of the relevance of logistics in online and omnichannel retail, and its impact on customer behavior.

This purpose is explored in four research articles that examine the relevance of logistics from various angles. Article I is a systematic literature review synthesizing empirical literature on the impact of logistics on customer purchase, repurchase, and return behavior in online and omnichannel retail. Article II analyzes how carrying a stock-keeping unit in inventory at the warehouse affects its sales in online retail. Article III investigates how an online retailer’s change in return policy to free returns increases purchases from customers, but also the volume of items being returned to the retailer. Finally, Article IV examines how a buy-online-return-to-store policy in omnichannel retail impacts store performance.

The theoretical contributions to the literature are as follows. First, the dissertation illustrates the relevance of logistics in retail today by showing how logistics does not only impact the cost side of a business but also customer behavior and, hence, the demand side. Second, the research highlights the integrative approach that retailers need to adopt between the marketing and operations functions to operate successfully, as action taken by one business function increasingly impacts the other. Third, the dissertation accentuates the role of people in operations management research. It emphasizes how customer behavior is impacted by retail logistics, and thus adds to a better understanding of how people affect real-life operational processes.

Place, publisher, year, edition, pages
Stockholm: Stockholm Business School, Stockholm University, 2023. p. 28
Keywords
retail logistics, online retail, omnichannel retail, customer behavior, marketing-operations interface
National Category
Business Administration
Research subject
Business Administration
Identifiers
urn:nbn:se:su:diva-212543 (URN)978-91-8014-124-6 (ISBN)978-91-8014-125-3 (ISBN)
Public defence
2023-01-27, room 4204, house 3, Stockholm University Conference Center, Albanovägen 29, Stockholm, 13:00 (English)
Opponent
Supervisors
Available from: 2023-01-02 Created: 2022-12-08 Last updated: 2022-12-22Bibliographically approved

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