Bracketing of Purchases to Manage Size Uncertainty : Should Online Retailers Be Worried?

For online apparel retailers, sizing has proven to be a particularly thorny challenge - no matter how much information is provided online, it is often impossible for an online shopper to determine exactly which size of an apparel item will fit her best. Given the increasing ubiquity of free returns (full refund, no return shipping charge), consumers often manage this size uncertainty by bracketing their online apparel purchases, i.e., ordering additional sizes with the intention of keeping the one that fits best and returning the others. Since bracketing is a relatively new phenomenon in retailing, its net effect on retailer profits is not well-understood. From a retailer's perspective, bracketing leads to an increase in consumer returns and the associated costs, which can be quite substantial. On the other hand, bracketing also alleviates consumers' concerns about size, and can drive higher net sales. In this paper, we establish how price can be used as a lever to influence consumer bracketing behavior, and examine the impact of bracketing on the profits of a monopolist retailer who offers free returns. We provide prescriptions on when retailers should encourage and discourage bracketing by focusing on three key parameters: the reverse logistics cost, consumers' hassle cost, and a product's match probability