High product return rates and their associated costs pose major challenges to online retailers. In some industries, even return rates over 50% are not unusual. Beyond the foregone profits, product returns result in costs for unpacking, checking the product’s condition, repacking, restocking, and issuing the refund to the customer. In many cases products are returned in used condition.
Until now, online retailers only had to decide upon offering free shipping to their customers or not. It was only possible to make customers pay for the occurring costs from returned orders for order values above 40 Euros, if the retailer operated in Germany.
Within the new changes of the EU-Directive, online retailers now have the possibility to make customers pay for returned orders. Online retailers could use this legislative change as a chance to adjust their shipping and return policies. Shifting return costs to customers induces on the one hand that the online retailer bears fewer costs from product returns but on the other hand, it could also lead to fewer orders. Our goal is to support online retailers when weighting these two effects. To achieve this, we compare values of the profit per order that would result from four possible scenarios between which the online retailers can choose.
In our model, we assume that the costs of shipping and returning orders are comparable. In addition, we assume that a customer either keeps or returns the whole order. If the current scenario of the retailer does not charge fees for shipping and/or returns, we make the assumption for the remaining possible scenarios that the fees which online retailer would charge are as high as his actual shipping costs.
The return cost calculator is a service provided free of charge. You do not have to register or sign up. We rigorously developed the return cost calculator and provide it free of charge to online retailers, but take no guarantee.
Prof. Dr. Bernd Skiera
Bernd Skiera is chaired professor of electronic commerce at Goethe-University in Frankfurt, Germany.
Siham El Kihal
Siham El Kihal is part of the PhD program in quantitative marketing and is a research assistant at the E-Finance Lab
Prof. Dr. Christian Schulze
Since March 2012, Christian Schulze is an Assistant Professor in Marketing at the Frankfurt School of Finance & Management.