How Consumers Value Retailer's Return Policy Leniency Levers : An Empirical Investigation

Due to the ongoing and dramatic growth in the volume of consumer returns, retailers continue to struggle with the trade-off in returns service strategies between implementing stricter return policies to lower operational costs versus providing customers with lenient return policies to positively stimulate customers' value perceptions and patronage intentions. This paper argues that an effective management of this trade-off requires a deep understanding of the process through which customers perceive, evaluate, and respond to return policies that vary in terms of leniency across five key dimensions identified in the literature: monetary, time, effort, scope, and exchange. To this end, we propose a theory-based, cognitive process model and test it in completely randomized experiments with diverse consumer samples. By viewing each of the five leniency dimensions as returns service design levers, we examine: 1) how a retailer's return policy leniency across different levers impacts a customer's intention to purchase from a retailer, through the influence of leniency on the perceptions regarding returns service quality and transaction costs that jointly form perceived returns service value and 2) how different leniency levers compare in terms of their impacts. We find significant heterogeneity in the effectiveness of different leniency levers in influencing customers' purchase intentions through increased perceived service quality, reduced perceived transaction costs, and subsequently increased perceived service value