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Should Retailers Allow Product Returns?

Most retailers, especially online retailers, have returns policies to reduce shopping risk and increase customer loyalty. However, liberal return policies are sometimes abused by consumers through practices such as lying about the reason for return, returning after single use, or returning a product damaged by the customer. To avoid losses due to such fraudulent returns, research recommends that retailers should frame more rigorous return policies that ensure only genuine returns by consumers.

The biggest barrier to adoption of online shopping was the inability to view, touch and feel items that are being purchased. Most ecommerce businesses overcome this problem by offering a liberal returns policy. Several offline players have also been offering return policies which range from being liberal to selective. For instance: Big Basket has a no-questions-asked returns policy. Shoppers Stop offers a 7 – 14 day returns option for many of its products. And Amazon also offers returns on most products.

Major retailers adopt these policies as part of their customer proposition as it reduces risk of shopping, especially in online retail, and increases customer loyalty and confidence. However, these policies also have the potential for abuse due to unethical consumer behaviour. Unethical product returns eat into profits by increasing logistics costs and hurting sales. Retailers often grapple with the question: How can they design a returns policy that gives them market competitiveness without leaving them open to fraudulent and unethical returns? A study conducted in Taiwan observed customer behaviour to find answers to this question.

Fraudulent return is the return of a purchased good by a consumer for personal gain through deception. It involves a deliberate unethical or immoral choice to take advantage of a retailer’s return policy. Often, they take the form of false complaints to return products (e.g., citing poor quality when actually the consumer has simply changed their mind), planned return of products after single use (e.g., buying a suit for a job interview and then returning it), return or exchange after damage by consumer (e.g., dropping and breaking a vase, then exchanging it for an intact one). Such returns violate social norms, hurt retailers’ profits, and could even be illegal in some cases. This has wider ramifications as such actions erode system trust and may lead to a no-returns culture in the society.

The study found that consumers tend to indulge in fraudulent returns more when a retailer’s return policy is liberal. The factors to determine whether a return policy is rigorous or liberal are: 1) length of return period, 2) percentage of refund available, 3) level of return effort, 4) scope of product return, 5) exchange mechanism for return. Liberal return policies have: 1) a longer period of return, 2) a higher percentage of refund, including up to 100%, 3) few or no conditions (like producing the bill) for processing returns, 4) a wider range of products within the scope of the return policy, and 5) the option of cash refunds.

This unethical behaviour occurs because when a return policy is liberal, consumers’ sense of fraudulent returns being unethical is lower. That is, they may not even realise that their behaviour is unethical. And even when they recognise this, they may feel that the seriousness of their behaviour is low since the policy clearly “allows” the return behaviour demonstrated by them. For example, if a grocery retailer is willing to take back all its products in any condition, no questions asked, a customer who broke a carton of eggs may feel that they are not only justified in returning the carton but also entitled to do so.

This study has a significant insight for retailers regarding their return policies. If they want to reduce losses due to fraudulent returns, they need to frame return policies that are rigorous. They can do so by limiting the number of products that can be returned or exchanged, keeping a short timespan for returns, doing away with cash refunds as far as possible, assigning a rationalised percentage for refunds that takes possible fraud or logistics losses into account, and by implementing conditions of return specific to various product categories.

At the same time, it may be worthwhile to provide some discretion in terms of decision-making to cashiers and store clerks. The staff could be empowered, within limits, to make a subjective assessment of a situation, and allow returns by relaxing the policy.Since they are the ones that deal with customers on a regular basis, combining their experiences and some relevant training, they can be in a position to judge which returns are genuine and which are not. This human intervention based tactic can lead to a more robust implementation of the return policy that ensures genuine returns go through, enhancing customer trust, and weed out fraudulent ones, preventing losses.

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