Understanding Whether and How Fast Delivery Affects Product Returns and Fast Return-handling Affects Customer Retention

Product returns are one of the most significant pain points of the retail industry, especially for online retailers. Two key priorities in managing product returns are to reduce product returns and to better handle product returns, as processing returns incurs substantial costs, and poorly handled product returns can hurt customer loyalty and lead to lost future revenue. Based on 4.3 million purchase and return records from a quarter million representative customers, we present a causal analysis of whether and how fast delivery affects product returns and fast return-handling affects customer retention. We exploited a natural experiment of the opening of a new fulfillment center by a large e-commerce platform in China which significantly reduced the delivery time and return-handling time of serving nearby customers but had little impact on those further away customers. On product delivery, we find that a 10% improvement in delivery speed lowers the average product return rate from 14.37% to 13.50%. The rich purchase data also allowed us to provide corroborating evidence in support of the competition mechanism as a potential explanation for this effect: a longer delivery time may encourage consumers to reconsider their purchased item and opt for a cheaper alternative. On return handling, we find that a 10% improvement in return-handling speed leads to a remarkable 23.96% increase in the monetary value of the customer’s next purchase. This accelerated return-handling not only allows customers to receive their refunds faster so that they have budget for future purchases, but also significantly enhances customer satisfaction. Our study represents the first attempt to causally examine the benefits of fast delivery and return handling from a product return and customer retention perspective and offers valuable insights for online retailers seeking to enhance their service quality and optimize customer satisfaction