Emerging technologies change the shape of businesses, how they work, and how they communicate with their environments. Adapting to these changes is a key factor for each business to succeed. Transformative Marketing and Operations Management points to the underlying concept based on which the businesses revise/revolute their marketing and operations practices to adopt new technologies. In the retail industry, this trend and its impacts have been manifested in the customers’ purchasing and returning behavior. The rise in e-commerce has spiked return rates and their consequences, as at least 30% of all products ordered online are returned, compared to 8.89% in brick-and-mortar stores1.
Transformative Marketing and Operations Management impacts retail product demands and returns in several major ways. From the customer's point of view, the first influence is a more convenient purchasing and returning process. For instance, self-service drop-off kiosks that facilitate the return process or the “See my fit” tool that allows shoppers to view an outfit on different body shapes, helping consumers determine what the item might look like on themselves. The convenience of product return clearly increases the frequency of return in the retail markets. Second, customers can more easily acquire information about the products they are considering, especially using the internet and various online tools, such as reviews and ratings on popular shopping websites like “amazon.com” or “epinions.com.” On the other hand, from the retailers’ point of view, implementing modern technologies and purchasing and return channels increases the processes’ complexity and the related expenses of direct and reverse supply chains.
Based on these new and emerging circumstances, we briefly review a summary of the results of a series of research projects conducted jointly at the University of Rhode Island and the University of Massachusetts Boston on the impact of the current trends in transformative marketing and operations management on customer behavior, considering a monopoly retail market. These results provide insights into the right strategies for managing retail product returns, including but not limited to the product pricing, specifying the appropriate refund level or the restocking fees, implementing return leniency measures, and providing product information.
The results show that implementation of return leniency measures does not impact customers' purchase and return behavior under most circumstances if there are low endowment effects, which is a feeling of attachment to the product after purchasing and owning the product. The exception happens when the salvage value of returned product and uncertainty level (prior purchase) are both high. Then the return probability decreases with the return leniency. However, the trend is typically reversed when a high endowment effect exists for customers. Under such conditions, the return probability usually increases with the return leniency. In contrast, the purchase probability increases if the product acquisition cost is high. If not, the purchase probability shows a decreasing pattern followed by an increase unless the uncertainty is low and the salvage value is high. Therefore, if the cost of product acquisition is not high, the return probability decreases with the return leniency.
The impact of reduced market uncertainty as the result of transformative marketing and operation management depends on the salvage value of the returned product and the endowment effect. When the former is low and the latter is high, the return behavior of customers is not significantly affected by the reduced uncertainty level. Still, market demand will be reduced if return leniency is moderate and the cost of product acquisition is low. Reversely, when the salvage value is high and the endowment effect is low, market demand will slightly decrease with reduced market uncertainty. However, return frequency is significantly reduced, particularly at low levels of return leniency. On the other hand, when both are low, customers’ purchase and return behavior are not affected by reduced uncertainty levels. When both factors are high, market demand increases if the cost of acquiring the product is high and return leniency is low or vice versa. The return frequency is reduced at low levels of return leniency and low product acquisition cost. Still, it does not change notably for the high product acquisition cost. On the other hand, return frequency increases at high levels of return leniency.
In terms of increased supply chain expenses due to transformative marketing and operations management, changes over the direct and reverse supply chains have different impacts on the customers’ behavior. Starting with the increased direct expenses, the results show that salvage value plays a key role in the outcomes. When the salvage value is low, market demand significantly decreases subject to the higher expenses of the direct supply chain. Also, return frequency decreases slightly when both the endowment effect and return leniency are high. But when salvage value is high, market demand remarkably decreases, particularly when the endowment effect and return leniency are high and market uncertainty is low. If the endowment effect is low, return frequency increases if uncertainty is high; otherwise, it remains almost unchanged. However, if the endowment effect is high, return frequency decreases, especially when the return leniency is high. Regarding the impact of higher reverse supply chain expenses, when the endowment effect is low, and uncertainty is high, market demand decreases slightly at low return leniency levels, but return frequency significantly decreases, particularly at low return leniency. When both the endowment effect and uncertainty are high or low, market demand and return frequency do not change significantly. However, when the endowment effect is high, and uncertainty is low, market demand increases for the low cost of product acquisition and high return leniency. In contrast, for the high cost of product acquisition and high return leniency, demand decreases.
1 E-commerce Product Return Rate – Statistics and Trends [Infographic]