Promoting product returns? The impact of at-purchase and post-purchase discounts on customers’ return behavior

Abstract

Online retailers dynamically adjust product prices, potentially influencing both purchase and return behavior of customers. In particular, price discounts may affect returns not only for purchases made during the discount period (at-purchase discounts) but also for purchases made beforehand if a lower price is observed within the return window (post-purchase discounts). This study examines the impact of both discount types on product returns, using transaction data from a major European generalist online retailer comprising nearly 84 million purchases and over 37 million returns across >300 product categories. Results indicate that at-purchase discounts are associated with a linear decline in return rates, whereas post-purchase discounts above 25 % increase return rates in a non-linear fashion. On average, the adverse effects of post-purchase discounts outweigh the favorable effects of at-purchase discounts for discounts exceeding 40 % (20 %) among customers without (with) discount-driven return experience. These effects vary considerably across product categories, depending on shopping motives, category characteristics, and marketing mix. In the end, retailers should recognize that deep discounts may inadvertently promote product returns.