UF Study: Retailers Get Unexpected Benefits From Lenient Return Policies

November 20, 1998

GAINESVILLE — To make money this holiday season, retailers should be more lenient in accepting returned merchandise from the growing number of long-distance customers who buy from catalogs or the Internet, a new University of Florida study suggests.

There is a nationwide trend in retailing, from department stores to discount chains, to toughen up the conditions under which products can be returned, said Stacy Wood, who did the study for her doctoral dissertation in marketing at UF. However, these restrictions may be a mistake for catalog and Internet retailers, she said.

“Return policies are very important in this expanding market because when customers can’t inspect what they buy beforehand, as they can in a traditional store, they want to be sure they can easily reverse what they perceive to be a risky purchase decision,” said Wood, who is now a marketing professor at the Darla Moore School of Business at the University of South Carolina.

Surveys of 120 undergraduate marketing students at UF, using different shopping scenarios and asking them to predict their buying behavior, show lenient return policies have some unexpected benefits to retailers, Wood said. Results were supported by further experimentation in which subjects actually ordered real products from a catalog, she said.

“For example, when people order through a catalog or the Internet under a lenient return policy, they are more likely to order and spend less time making that decision,” Wood said.

With a lenient policy, buyers tended to frame their orders as trials rather than true purchases, Wood said. But by the time the merchandise arrives, they are more committed to the product than shoppers who order under a restrictive policy, she said.

“Over the delivery period time, people forget that they ordered it under a less committed frame of mind and by the time it comes they’re really expecting it, looking forward to it and they feel like they own it,” she said.

Wood acknowledged that there have been many abuses that led retailers to tighten up their return merchandise policies. Restrictive policies can mean anything from having a time limit imposed on the product’s return to requiring the consumer to pay the cost to ship it back, she said.

“There have been many cases in the past where return policies were so liberal that companies felt they were being abused by the customer,” Wood said. “There are many anecdotes about consumers returning products in terrible condition and still receiving full refunds because of the store’s liberal return policy.”

But Wood said it behooves retailers to account for the psychology of the long-distance buyer. People ordering under lenient policies actually were less likely to return merchandise because they considered it to be higher quality, Wood said. “They predicted it would be higher quality at the time they ordered it, and they evaluated it as higher quality when they had the product in hand,” she said, attributing this to a psychological phenomenon called confirmation bias in which people see the evidence they expect to see.

For example, if they ordered a shirt from a catalog and found it to be made of a thin fabric when it arrived, they would consider it in positive terms such as being lightweight or breathable rather than cheap or flimsy, she said.

Unfortunately, the managers who make the policy decisions for catalogs and Internet shopping are the same ones doing so for respective retailers, and the trend has been to move away from what have been some very liberal return policies in the past, Wood said.

There are exceptions, though, Wood said. One well-known outdoor recreation outlet with a strong catalog following has such a lenient return policy that customers can return backpacks five years later and the company even pays the shipping costs, she said.

Having a liberal return policy helps build a trusting customer relationship, said Charlotte LaComb, manager of investor and financial relations for Land’s End, a cataloger that sells clothing, luggage and other goods. The company has such a simple return policy that it has even trademarked it, she said. “It’s two words: ‘It’s guaranteed.’ Period. That means everything you buy, you may return it at any time for any reason.”