Preventive Product returns Management Systems - a Review and Model

Abstract Intense competition among online retailers and high customer expectations drive product returns, which eat into online retailers’ profits. Thus, online retailers need to find ways to reduce return rates without causing a concomitant decrease in sales. Using a grounded theory approach which combines literature-based insights and in-depth qualitative interviews with managers from major online retailers, the authors propose a framework for understanding the antecedents of the decision to implement a product returns management system (PRMS). In addition, the framework considers three types of preventive instruments online retailers employ to reduce product return rates as well as moderators of the linkage between the decision to implement a PRMS and the chosen instruments type. The authors conclude with a brief discussion of future research directions. Keywords: e-commerce, instruments, product returns management system 1 Introduction Product returns continue to be a challenge for the retailing industry. Both brick-and-mortar and online retailers incur substantial costs through taking back and restocking returned products. European online retailers experience product return rates of 40% or higher in product categories such as fashion (Accenture 2012). Handling each returned item costs online retailers between $6 and $18 (The Economist 2013). While the whole retailing industry is hemorrhaging profits owing to high return rates, this problem is particularly rampant in online retailing. Not surprising, retailers’ product return management systems (hereafter PRMS) remains a pressing issue for online retailers (Bower and Maxham 2012). This is especially true for European Union (EU) online retailers that cannot recoup returns-related expenses by charging product return penalties owing to competitive pressure or legislation reasons. As of 2014 EU law stipulates that online retailers have to offer a no-questions return period of 14 days to their customers (The Economist 2013). Despite the economic relevance of product returns, research on online retailers’ PRMS remains scarce, both within and outside the information systems (IS) field. Especially research on preventive measures remains conspicuously absent from the literature. We believe the topic of product returns is important to IS research, given that IS (e.g., ERP, CRM systems) are involved in most e-commerce transactions, including the procedures for handling the product returns. IS research tends to take a supply chain