Customer segmentation based on buying and returning behaviour

Purpose – The purpose of this paper is twofold: first, to empirically test whether a “one size fits all” strategy fits the fashion e-commerce business and second, to evaluate whether consumer returns are a central aspect of the creation of profitability and, if so, to discuss the role of returns management (RM) in the supply chain strategy. Design/methodology/approach – Transactional sales and return data were analysed and used to categorise customers based on their buying and returning behaviours, measuring each customer's net contribution margins. Findings – The e-commerce business collects a vast quantity of data, but these data are seldom used for the development of service differentiation. This study analysed behaviour patterns and determined that the segmentation of customers on the basis of both sales and return patterns can facilitate a differentiated service delivery approach. Research limitations/implications – This research empirically supports the theory that customer buying and returning behaviours can be used to appropriately categorise customers and thereby guide the development of a more differentiated service approach. Practical implications – The findings support a differentiated service delivery system that utilises a more dynamic approach, conserving resources and linking the supply chain and/or organisational strategies with customers' buying and returning behaviours to avoid over and underservicing customers. Originality/value – Consumer returns are often viewed as a negative aspect of doing business; interestingly, however, the authors revealed that the most profitable customer is a repeat customer who frequently returns goods.