TAILIEUCHUNG - Controlling Product Returns in Direct Marketing

“The . Economy grew at an annualized rate of in the first quarter of 2003, after expanding in the 2002 fourth quarter. First-quarter growth was achieved despite an impending war in Iraq, high oil prices, harsh winter weather in many parts of the country, and heightened security alerts” (Wagle). The possibility of another economic recession has dropped significantly. However, there is concern that the . could possibly fall into a deflationary trap, or declining prices and wages that could result in eroding asset values. “According to the . Department of Labor, the May producer. | Marketing Letters 7 4 1996 307-317 1996 Kluwer Academic Publishers Manufactured in The Netherlands Controlling Product Returns in Direct Marketing JAMES D. HESS University of Illinois 350 Commerce West Building 1206 South Sixth Street Champaign IL 61820 WUJIN CHU Seoul National University School of Management Shinlim-Dong Kwanak-Ku Seoul 151. Korea EITAN GERSTNER University of California Davis Graduate School of Management Davis CA 95616 University of Haifa Israel Received February 6 1996 Revised April 26 1996 Accepted June 5 1996 Abstract Many direct marketers offer price refunds to unsatisfied consumers but as a result some consumers order products with no intention of keeping them. We show that such inappropriate returns can be controlled in a profitable way by imposing nonrefimdable charges and that these charges increase with the value of the merchandise ordered. Data collected from clothing mail-order catalogs is consistent with our theory. The shipping and handling charges of these catalogs are usually nonrefundable and increase with the value of the merchandise ordered even when the actual shipping and handling costs are constant. 1. Introduction Mail-order shopping offers customers many conveniences. Rather than enduring the myriad inconveniences of mall shopping customers can order products such as clothing compact discs and computers from catalogs within the comfort of their homes twenty-four hours a day all year long. Many customers find such convenience very appealing nearly 12 billion catalogs were distributed by companies to consumers in 1993 and more than half of the . adult population made at least one product purchase by phone or mail Consumer Reports 1994 . Compared to retail shoppers however catalog shoppers face greater uncertainty about product fit because they cannot examine and try the products prior to purchase. To reduce this risk many catalog retailers offer price refunds on returned merchandise. There are reports that many consumers .

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