Product returns pose a major challenge for retailers. In 2022, U.S. consumers returned 16.5% of merchandise purchases, costing retailers an estimated $816 billion in lost revenue. Typical strategies to reduce revenue lost to product returns include reducing the likelihood of returns by providing more information about products (e.g., reviews and FAQs) and increasing the financial and transaction costs to consumers who do return products (e.g., shipping costs and limited return windows). But the former strategy is costly to retailers, and the latter is costly to consumers. Our recent research identifies an effective strategy for reducing this loss of revenue that benefits everyone: cross-selling products during the product-return process.
How Retailers Can Capitalize on the “Refund Effect”
Research finds that consumers treat refunds as money they’ve already spent.
June 15, 2023
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Summary.
In 2022, U.S. consumers returned 16.5% of purchases, costing retailers an estimated $816 billion in lost revenue. Research suggests that cross-selling products during the return process is an effective strategy to reduce this revenue loss. Across a number of experiments, researchers found that consumers treat refunds as money already lost, so it’s less painful to spend these funds on another purchase, so long as cross-selling occurs before the money is reissued to the customers’ original payment method and consumers initially expected to keep the goods they were planning to buy. The researchers also found that this “refund effect” applies across categories. Creating return policies and practices informed by the refund effect can reduce revenue loss from product returns in a way that benefits both consumers and retailers.