Tag Archives: returns

The Curious Psychology of Returns

In a recent post I wrote about the world of reverse logistics, which underlies the multi-billion dollar business of product returns. But while the process of consumer returns runs like a well-oiled, global machine the psychology of returns is confusingly counter-intuitive.

For instance, a lenient return policy leads to more returned products — no surprise there. But, it also causes increased consumer spending, and the increased spending outweighs the cost to the business of processing the increased returns. Also, and rather more curiously, a more lenient return time limit correlates to a reduction in returns, not an increase.From the Washington Post:

January is prime time for returns in the retail industry, the month where shoppers show up in droves to trade in an ill-fitting sweater from grandma or to unload the second and third “Frozen” dolls that showed up under the Christmas tree.

This post-Christmas ritual has always been costly for retailers, comprising a large share of the $284 billion in goods that were returned in 2014.  But now it is arguably becoming more urgent for the industry to think carefully about return policies, as analysts say the rise of online shopping is bringing with it a surge in returns. The return rate for the industry overall is about 8 percent, but analysts say that it is likely significantly higher than that online, since shoppers are purchasing goods without seeing them in person or trying them on.

Against that backdrop, researchers at University of Texas-Dallas sought to get a better handle on how return policies affect shopper behavior and, in turn, whether lenient policies such as offering a lengthy period for returns actually helps or hurts a retailer’s business.

Overall, a lenient return policy did indeed correlate with more returns. But, crucially, it was even more strongly correlated with an increase in purchases. In other words, retailers are generally getting a clear sales benefit from giving customers the assurance of a return.

One surprising finding: More leniency on time limits is associated with a reduction — not an increase — in returns.

This may seem counterintuitive, but researchers say it could have varying explanations. Ryan Freling, who conducted the research alongside Narayan Janakiraman and Holly Syrdal, said that this is perhaps a result of what’s known as “endowment effect.”

“That would say that the longer a customer has a product in their hands, the more attached they feel to it,” Freling said.

Plus, the long time frame creates less urgency around the decision over whether or not to take it back.

Read the entire article here.

Anti-Gifting and Reverse Logistics

Google-search-gifts-returns

Call it what you may, but ’tis the season following the gift-giving season, which means only one thing, it’s returns season. Did you receive a gorgeous pair of shoes in the wrong size? Return. Did you get yet another hideous tie or shirt in the wrong color? Return. Yet more lotion that makes you break out in an orange rash? Return? Video game in the wrong format or book that you already digested last year? Return. Toaster that doesn’t match your kitchen decor? Return.

And, the numbers of returns are quite staggering. According to Optoro — a research firm that helps major retailers process and resell returns — consumers return nearly $70 billion worth of purchases during the holiday season. That’s more than the entire GDP of countries like Luxembourg or Sri Lanka.

So, with returns being such a huge industry how does the process work? Importantly, a returned gift is highly unlikely to end up back on the original shelf from where it was purchased. Rather, the gift is often transported by an inverse supply-chain — known as reverse logistics — from the consumer back to the retailer, sometimes back to a wholesaler, and then back to a liquidator. Importantly, up to 40 percent of returns don’t even make it back to a liquidator since it’s sometimes more economical for the retailer to discard the item.

From Wired:

For most retailers, the weeks leading up to Christmas are a frenzied crescendo of activity. But for Michael Ringelsten, the excitement starts after the holidays.

Ringelsten runs Shorewood Liquidators, which collects all those post-holiday returns—from unwanted gadgets and exercise equipment to office furniture and popcorn machines—and finds them a new home. Wait, what? A new home? Yep. Rejected gifts and returned goods don’t go back on the shelves from which they came. They follow an entirely different logistical path, a weird mirror image of the supply chain that brings the goods we actually want to our doors.

This parallel process exists because the cost of restocking and reselling returned items often exceeds the value of those items. To cut their losses, online retailers often turn to folks like Ringelsten.

I discovered Shorewood Liquidators through a rather low rent-looking online ad touting returned items from The Home Depot, Amazon, Sears, Wal-Mart, and other big retailers. I was surprised to find the items weren’t bad. Some were an out-and-out deal, like this comfy Arcadia recliner (perfect for my next Shark Tank marathon). Bidding starts at 99 cents for knickknacks or $5 for nicer stuff. The descriptions state whether there are scuffs, scratches, or missing parts.

“This recliner? It will definitely sell,” Ringelsten says. Shorewood employs 91 people who work out of a 100,000-square-foot warehouse in Illinois—a space that, after the holidays, is a Through the Looking Glass version of Amazon, selling unwanted gifts at rock-bottom prices. And as Americans buy more and more holiday gifts online, they’re also returning more, creating new opportunities for businesses prepared to handle what others don’t want. Call it “re-commerce.”

The Hidden World of Returns

UPS says last week it saw the highest volume of returns it expects to see all year, with people sending back more than 5 million gifts and impulse purchases. On the busiest day of that week, the shipper said, people sent back twice as many packages—1 million in all—than the same day a year ago.

But those returns often don’t return from whence they came. Instead, they’re shipped to returns facilities—some operated by retailers, others that serve as hubs for many sellers. Once there, the goods are collected, processed, and often resold by third-party contractors, including wholesalers and liquidators like Shorewood. These contractors often use software that determines the most profitable path, be it selling them to consumers online, selling them in lots to wholesale buyers, or simply recycling them. If none of these options is profitable, the item may well end up in a landfill, making the business of returns an environmental issue, as well.

Read the entire story here.

Image courtesy of Google Search.