RLA Vegas 2015 - Estimating The Value Of A Money-Back Guarantee Policy In The Online Retail Context | PresentationsDetails
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While Money-Back-Guarantee (MBG) return policies are common in practice, the academic literature provides little guidance on the value, if any, that consumers assign to such a policy. For online retailers, both shipping charges and seller reputation may influence the perceived value of MBGs. A non-refundable forward shipping charge is likely to be perceived by consumers as an implicit restocking fee and hence, decreases the value of an MBG policy. On the other hand, good customer feedback may signal that MBGs will be handled easily, thus increasing their value in the eyes of consumers. To investigate the value of MBGs in the online context, we collect the final selling prices of identical consumer electronics products offered by different vendors (with different return policies) on eBay auctions. We estimate that offering an MBG policy for online consumer electronics increases a customer's valuation of a product by an average of 5.2%, which
is significantly influenced by both seller reputation and shipping charges. Our results provide an empirical measure of the value of an MBG that can be weighed against the cost implications of providing such a policy.
Mark Ferguson, Professor of Management Science, University of South Carolina