The Impact of Online Product Reviews on Product Returns
Nachiketa Sahoo, Chrysanthos Dellarocas, and Shuba Srinivasan, 2016, 16-101
Product returns significantly affect the bottom line of manufacturers and retailers, costing as much as $100 billion annually or 3.8% of revenue. Some practitioners suggest that the presence of consumer-generated product reviews can reduce return rates and that product return rates decline with more reviews, although these industry claims have not been confirmed.
Although many researchers have studied the effect of product reviews on sales, few have looked at their effect on product returns. Nachiketa Sahoo, Chrysanthos Dellarocas, and Shuba Srinivasan fill this gap by offering what they believe is the first academic study to address this question: Do consumer-generated product reviews lead to lower product returns?
They hypothesize that, by affecting the quality of purchase decisions, product reviews influence the probability of the eventual return of the purchased products. They develop an analytical model that shows how changes in the precision of product quality and fit information available in the reviews affect the return probabilities of consumers, and empirically validate their predictions using a transaction-level dataset from a multi-channel, multi-brand specialty retailer operating in North America.
Overall, their results suggest that online reviews indeed help consumers make better purchase decisions leading to lower product returns. Harnessing data on multiple purchases and returns of the same products, but with varying sets of product reviews over a period of two years, they find that the availability of more reviews, as well as reviews that are deemed “helpful” by consumers, lead to lower incidence of product returns, after controlling for customer, product, and other context-related factors.
- While the number of reviews available at the time of purchase has a significant negative effect on the probability of product returns, additional reviews have diminishing effects.
- In-store purchases, where the consumer has more opportunity to examine the product and get more information about quality, have much lower probability of being returned compared to online shopping.
- Higher dispersion (variation in ratings) among reviews increases the probability of product returns, suggesting that a lack of clear information about product quality can lead to higher return.
- While products with reviews that are deemed helpful by other consumers are less likely to be returned, products with reviews from company-identified top reviewers are associated with a higher probability of return.
- Products with lower fit uncertainty (such as furniture and home items) are associated with a lower probability of return relative to products with higher fit uncertainty (such as clothing).
- Repeated online browsing of the purchased product and keyword searches are associated with lower product returns, whereas a higher number of different products browsed is associated with higher product returns. These results might point to different level of uncertainty in the customer’s mind at the time of purchase that leads to the observed post-purchase return behavior.
- Availability of more and helpful product reviews improves the probability that the products browsed online will be purchased, in addition to lowering the probability of those purchased products being returned.
These findings underscore the importance of providing online product reviews to consumers. Retailers should leverage appropriate incentives and rewards to actively encourage consumers to share their experiences with products via online consumer reviews. At the same time, retailers should be careful when endorsing customer written reviews and, when in doubt, trust helpfulness indicators provided by other customers.
The finding that more online information gathering by consumers is beneficial in terms of both boosting purchases and lowering returns suggest that retailers should provide extensive online product information in conjunction with reviews. Proactive product information provision strategies by retailers could enhance their strategic competitiveness and represent a win-win outcome on boosting purchases and lowering return costs.
Nachiketa Sahoo is Assistant Professor of Information Systems, Chrysanthos Dellarocas is Richard Shipley Professor in Management, and Shuba Srinivasan is Adele and Norma Barron Professor in Management, all at Boston University.
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