Product failure and product returns in online shopping: the role of hedonically and utilitarian superior products

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Product failure and product returns in online

shopping: the role of hedonically and utilitarian

superior products

by

Wibe Snelting

University of Groningen

Faculty of Economics and Business

Master Marketing Management

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Abstract

A major problem for manufacturers and retailers is formed by product returns. Also online

businesses suffer from this phenomenon. For e-retail websites the average return rate is 8%. They spend approximately 2% to 3% of their sales to manage all aspects of a product return. Research in the field of product returns has mainly focused its efforts on costs, return policies, consumer characteristics and behavior, and technologies. This research focusses on the effect of product failure, hedonically and utilitarian superior products, and the endowment effect (caused by a sense of ownership) on the keep-or-return decision of consumers. Unfortunately, the manipulation for hedonically and utilitarian superior products failed, and no significant effect of the hedonic and utilitarian scale on the keep-or-return decision was found. The direct effect of product failure is not significant. The sense of ownership is moderating the relationship between product failure and the keep-or-return decision. The negative effect of product failure depends on the level of ownership the consumer experiences after ordering a product online. The higher the level of ownership the

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1. Introduction

More and more consumers use the Internet to purchase their products. The use of online retailing as a distribution channel continues to grow (Griffis et al., 2012). Forrester (2013) predicts that

eCommerce will grow at a compound annual growth rate of 9% between 2012 and 2017. Because this increasing importance of eCommerce we will have a closer look at online shopping behavior and its effects on manufacturers and retailers.

A major problem for manufacturers and retailers is formed by product returns – which is also affecting online businesses. According to Blanchard (2007) product returns cost U.S. manufacturers and retailers $100 billion every year in lost sales, transportation, handling, processing and disposal. On average, product returns can reduce the profitability of manufacturers by 3.8%. Accenture (2011) put it another way by stating that manufacturers spend about 5% to 6% of revenues to manage all aspects of a product return, and retailers approximately 2% to 3% of sales. On average, web retailers spend $6 to $8 for each return (Brohan, 2005). For e-retail websites the average return rate is 8%, but this percentage often exceeds 20% for apparel websites (Enright, 2011). Apparently return rates differ on the type of products that are being offered. A reason for us to focus more on product categories and their return rates.

According to CBS (2014) – the Dutch office for national statistics – product categories differ on how often they are purchased by consumers. For example apparel is the most purchased product category in the Netherlands, followed by travel reservations. In order to categorize products in our research we use the research of Dhar and Wertenbroch (2000), who state that consumer perceptions and preferences have both hedonic and utilitarian dimensions. Until today no research has been done on the differences in keep-or-return decisions for hedonic and utilitarian products. Research in the field of product returns has mainly focused its efforts on costs, return policies, consumer

characteristics and behavior, and technologies.

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2 We have the following main question for our research:

In an online shopping condition, are consumers more likely to return a utilitarian superior product than a hedonically superior product?

To be able to answer the main question this research investigates whether product failure results in more returns, and whether utilitarian superior products are more likely to be returned than

hedonically superior products. Next it investigates whether hedonically and utilitarian superior products moderate the relationship between product failure and the keep-or-return decision. Finally, it investigates whether the sense of ownership mediates the relationship between hedonically and utilitarian superior products and the keep-or-return decision. Hence, this research answers the following sub questions:

1. In an online shopping condition, does product failure result in more product returns? 2. In an online shopping condition, are utilitarian superior products more likely to be returned

than hedonically superior products?

3. In an online shopping condition, do hedonically and utilitarian superior products moderate the relationship between product failure and the keep-or-return decision?

4. In an online shopping condition, does the sense of ownership mediate the relationship between hedonically and utilitarian superior products and the keep-or-return decision?

1.1 Contributions and relevance

This research contributes to the theory on product return behavior of consumers, and more specifically in an online environment. It provides insights on the effect of a seller-related product failure, how it is perceived by consumers, and whether the effect of product failure depends on other variables or elements. This research also contributes to the theory on the endowment effect in online shopping, and investigates the endowment effect for a digital product which consumers can receive right after their purchase. Participants did not have to wait a substantial amount of time, and therefore the delay between order and receipt was minimized.

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3 The manipulation to make consumers perceive the product as hedonically or utilitarian superior is a first attempt to investigate what elements in an online shopping environment are affecting how a product is perceived. Our research is unique thanks to its mix of product failure, hedonically and utilitarian superior products, and the sense of ownership.

More and more products are purchased online and web retailers feel the financial impact of returns. It is important for web retailers to know what the effect of product failure is, whether hedonically or utilitarian superior products are more likely to be returned, and how the sense of ownership is affecting online shopping behavior. This research provides web retailers with better insights for the design of the online shopping environment, and its effect on return rates. It enables them to

understand the importance of incorporating the endowment effect in the online purchasing process.

1.2 Limitations and structure

This research contains several limitations. First, the group of participants is lacking diversity in age and educational background. A majority of the participants in the experiment were higher educated young adults – despite the efforts to reach other participants through two newsletters of Belgian websites. Another limitation is the fact that only one study was performed, consisting of one product, namely a digital travel guide. Since this study used an online shopping condition no

comparisons could be made between keep-or-return decisions for online and in-store shopping. The product in our research contained one product failure which means that we do not know whether differing keep-or-return decisions exist for different product failures. The product failure in our study was seller related, which means that we cannot provide insights on the effects of buyer related failure.

The manipulation of the product, namely hedonically or utilitarian superior, was limited. Only the product description differed, in order to preclude confounding results. This research measured the sense of ownership (causing the endowment effect), but did not investigate what is affecting the level of ownership participants perceived. Therefore we could not come up with specific advice regarding how to improve the online purchasing cycle.

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2. Literature review

This chapter starts with a general explanation of our conceptual framework in subsection 2.1. In subsections 2.2 (product failure), 2.3 (hedonically and utilitarian superior products), 2.4 (moderator effect), and 2.5 (mediator effect) the conceptual framework and the hypotheses will be discussed in more detail.

2.1 Conceptual framework

Product returns are part of consumer’s post-purchase behavior. Consumers experience either satisfaction or dissatisfaction after the purchase of a product. Dissatisfaction due to the discrepancy between expectations and actual performance, may result in complaint behaviors including returning the product to the manufacturer or retailer (Johnson & Kang, 2009). According to Schulman et al. (2010) consumers often return a product because it does not match as well with preferences as had been expected.

Returning a product may also be affected by the shopping environment. Literature discusses the differences between online shopping and in-store shopping. The most important difference is the fact that direct examination of the product alternatives is precluded (Wood, 2001). We assume that the antecedents of the keep-or-return decision differ for online shopping compared to in-store shopping.

As visualized, below in figure 1, we propose that the effect of product failure, in an online shopping condition, on the keep-or-return decision of a consumer is moderated by whether a product is hedonically or utilitarian superior. Product failure results in more product returns, but because of the sense of ownership (causing the endowment effect) after ordering a product online, we assume that a utilitarian superior product is returned more often than a hedonically superior product.

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Figure 1: Conceptual model

The following subsections 2.1, 2.2, 2.3 and 2.4 will explain our conceptual model in more detail, starting with the main effect of product failure on the keep-or-return decision, followed by the relationship between hedonically and utilitarian superior products and the keep-or-return decision, the moderator effect and finally the mediator effect.

2.2 Product failure

Literature does not provide a clear definition of product failure. It seems to be a well-known phenomenon whereby a product contains an error or a mistake, resulting in discrepancy between the presumed and actual product specifications. Folkes (1984) used unpalatable food and a weight-loss breakfast drink which did not lead to any weight-weight-loss as examples of product failures. Other examples are a car breakdown and pants beginning to split (Folkes & Kotsos, 1986). Product failures can be divided in two main categories. Buyer related failure occurs for example when a buyer

misunderstood the product instructions, seller related failure occurs for example when the product is poorly made (Folkes & Kotsos, 1986). As mentioned above (in subsection 1.2), a limitation of this research is the fact that it consists of one experiment. Therefore only one product failure category could be investigated. The experiment is based on a seller related product failure.

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6 according to Jiang and Rosenbloom (2005), the after-delivery satisfaction has much stronger

influence on customer satisfaction and the intention to return a product than at-checkout satisfaction.

In summary, we propose that a product containing a failure, which results in failing to meet the expectations of the consumer, is more likely to be returned than a product that does not contain a failure.

H1: Product failure results in more product returns compared to no product failure.

2.3 Hedonically and utilitarian superior products

Hirschman and Holbrook (1982) state that hedonic consumption is consumer behavior that relates to multisensory, fantasy and emotive aspects of product usage experience. A hedonic product differs from a utilitarian product. The latter is cognitively placed on the dimension of instrumentality, where the consumer examines how useful or beneficial the product is (Batra & Ahtola, 1991). Consumers choose products because of affective preferences (hedonic) and cognitive or reasoned preferences (utilitarian) (Dhar & Wertenbroch, 2000). The terminology of hedonically and utilitarian superior products comes from Chitturi et al. (2008), who focus on the interplay of hedonic and utilitarian benefits. In their research a hedonically superior product is promoted with high scores on hedonic benefits and medium scores on utilitarian benefits, a utilitarian superior product is promoted with high scores on utilitarian benefits and medium scores on hedonic benefits. We define a hedonically superior product as a product which is promoted or characterized particularly as hedonic, and a utilitarian superior product promoted or characterized particularly as utilitarian.

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7 manufacturer or retailer. These findings may also hold for hedonically and utilitarian superior

products.

Important is also the fact that the consumer does not have the opportunity to examine the product physically until s/he received the product. According to Wood (2001) the endowment effect does exist for the online customer. In summary, we expect that a product that is promoted as utilitarian superior is more likely to be returned than a product that is promoted as hedonically superior.

H2: Consumers are more likely to return a utilitarian superior product than to return a hedonically superior product.

2.4 Moderator effect

Besides looking at the effects of product failure and the hedonic and utilitarian product classification on the keep-or-return decision separately, we also examine a possible moderator effect of the hedonic and utilitarian product classification on the relationship between product failure and the keep-or-return decision. As we already mentioned, consumers find it more difficult to give up a hedonic product than a utilitarian product (Dhar & Wertenbroch, 2000). We propose that the endowment effect is stronger for hedonically superior products compared to utilitarian superior product, in such way that consumers overlook product failure more while purchasing a hedonically superior product.

H3: The hedonically and utilitarian superior products affect the relationship between product failure and the consumer’s keep-or-return decision.

2.5 Mediator effect

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8 The relationship between hedonically and utilitarian superior products and the keep-or-return decision could be mediated by the sense of ownership (causing the endowment effect), since the fact that the endowment effect exists in online shopping, and the fact that for forfeiture choices

consumers find it more difficult to give up a hedonic product than a utilitarian product. We propose that consumers have a stronger sense of ownership in the case of a hedonically superior product than a utilitarian superior product. The stronger sense of ownership for a hedonically superior product facilitates the endowment effect in such way that we expect consumers to be less likely to return a hedonically superior product compared to a utilitarian superior product. Instead of a differing keep-or-return decision caused directly by whether a product is hedonically or utilitarian superior, the relationship is mediated by the sense of ownership. The hedonically or utilitarian superior products affects the sense of ownership, and the sense of ownership has an effect on the keep-or-return decision.

H4: The lower product return rates of hedonically superior products compared to utilitarian superior products is due to the endowment effect.

3. Methodology

To be able to test our hypotheses we will conduct an experiment, which will be explained and discussed below. In subsection 3.1 the design of the experiment is to be found, followed by a description of the participants in subsection 3.2. Finally, subsection 3.3 discusses the procedure and measures.

3.1 Design of the experiment

The aim of the experiment was to simulate an online shopping condition. In order to exclude confounding results, the product and the shopping environment were the same along all

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Failure No failure Hedonic Experimental condition 1 Experimental condition 2

Utilitarian Experimental condition 3 Experimental condition 4

Table 1: The four different experimental conditions

Since participants actually had to receive the product during the experiment, and in order to keep the research feasible, we chose to use a digital product. It was an ebook, and more specifically, a travel guide. In experimental conditions 1 and 3 the travel guide was complete, but in conditions 2 and 4 one of the hiking maps was missing.

In order to simulate the keep-or-return decision, we split the experiment in two parts. During the first part the online shopping environment was simulated. Participants opened the online survey and were asked to read the scenario (randomly assigned), followed by the exposure to the online

shopping page containing information about the product. Both web pages (hedonically superior and utilitarian superior) are to be found in figure 1 and 2 of appendix B. After exposure to the online shopping page participants were asked to order the product.

During the second part participants were asked to have a look at the travel guide. This was followed by a question indicating whether participants would like to keep or return the travel guide. The online survey continued with questions regarding the sense of ownership, the manipulations

(hedonically or utilitarian superior, failure or no failure), and finally questions regarding participants’ characteristics. The online questionnaire is to be found in appendix A.

3.2 Participants

People were invited to participate in an online experiment and were randomly assigned to an experimental condition. Participants filled out the online questionnaire and executed several

commands. Data was collected in four groups (along the experimental conditions of table 1 below). A 2x2 between subjects design was applied.

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10 In appendix C an overview of the respondents’ characteristics is to be found. Originally our study contained 205 participants. After checking the data we deleted one outlier, since this respondent stated to be 100 years old and only came up with extreme scores on the scales of the survey. Almost 60% of the respondents are female, and 40% of the respondents are male. The average age of the respondents is 36, but the median age is 25. Half of the respondents are in the age between 17 and 25. Over 80% of the participants are highly educated. Finally 167 of the respondents are Dutch, 34 are Belgian, 1 is German, 1 is Canadian, and the nationality of 1 respondent is unknown.

3.3 Procedure and measures

Product failure

The situation in which product failure occurs is characterized by a product that contains an error or a mistake. Since literature does not provide us with a clear definition of product failure, scales

measuring this phenomenon do not exist. But we know that due to product failure discrepancy occurs between the expectations of the consumer and the actual specifications of a product. Therefore we decided to ask directly whether the ordered item met the expectations of participants firstly, for an overall indication, by using the statement: “The ordered travel guide meets my

expectations”. We also asked whether the ordered product contained errors (“The ordered travel guide contains errors”) or mistakes (“The ordered travel guide contains mistakes”). Participants indicated how strongly they agreed with the discussed statements on a 7-point scale, ranging from “strongly disagree” to “strongly agree”.

Keep-or-return decision

After the receipt of the product participants were asked to indicate whether they agree or disagree with the statement “I would like to keep the ordered product”. Respondents could answer on a 7-point Likert scale ranging from 1 (“strongly disagree”) to 7 (“strongly agree).

Hedonic and utilitarian scale

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11 Hedonic: - Not fun/fun; - Dull/exciting; - Unpleasant/pleasant; - Unamusing/amusing; - Enjoyable/unenjoyable. Utilitarian: - Effective/ineffective; - Helpful/unhelpful; - Functional/not functional; - Necessary/unnecessary; - Practical/impractical. Sense of ownership

Since we propose a differing keep-or-return decision for hedonically and utilitarian superior

products, caused by the sense of ownership, we also checked whether the endowment effect exists in our research. We came up with the statements below, answered on a 7-point Likert scale

anchored by endpoints “strongly disagree” and “strongly agree”. They were adapted from the research of Peck and Shu (2009).

- “I feel like this is my travel guide.”;

- “I feel a very high degree of personal ownership of the travel guide.”; - “I feel like I own the travel guide.”.

Consumers feel a sense of ownership through the delay between order and receipt. That is why we asked participants to answer the statements, while they were imagining the moment of order.

4. Results

This chapter contains the results of our analyses. In subsection 4.1 the preparation and measurement of the different scales are discussed. Subsection 4.2 discusses the manipulation check, followed by the analysis on the main effect in subsection 4.3. In subsection 4.4 the moderator effect of

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4.1 Preparation and measurement of the scales

The raw data was reorganized by aggregating the scale items into one scale, as mentioned in the methodology part. Below in table 2 the reliability statistics (measured by Cronbach’s Alpha) of the four scales are to be found. The scores are all above the level of 0.600 which means that the scales are reliable. One item was deleted for the scales product failure, the hedonic scale, and utilitarian scale, to increase reliability.

Scale Cronbach’s Alpha

Product failure 0.822

Hedonic scale 0.881

Utilitarian scale 0.871

Sense of ownership 0.886

Table 2: Reliability of the scales

4.2 Manipulation check

Also a manipulation check has been performed by the use of two independent samples tests. Below in table 3 the statistics for product failure are to found. The failure condition (M = 4.445) made respondents notice more stronger that failure was the case than the no failure condition (M = 3.805). The conditions failure and no failure differ significantly from each other (p = 0.002) with an alpha of 0.05. The manipulation regarding product failure worked successfully.

Product failure Mean Standard Deviation t-value p-value

Failure 4.445 1.589

3.079 0.002*

No failure 3.805 1.379

Table 3: Independent samples t-test product failure

*Significant at a level of α = 0.05

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HED/UT Mean Standard Deviation t-value p-value

Hedonically superior 3.848 0.584

0.331 0.741

Utilitarian superior 3.822 0.544

Table 4: Independent samples t-test hedonically and utilitarian superior products

4.3 Main effect: product failure

First, we check whether our model predicts the keep-or-decision. Our model consists of two parts, namely the moderation of hedonically and utilitarian superior products and the mediation of the endowment effect. In this subsection we start with the analysis of the main effect, namely the effect of product failure on the keep-or-return decision.

H1 predicts that product failure has a significant negative effect on the keep or return decision. Table

5 below shows that in a single regression product failure does have a significant negative effect on the keep-or-return decision (p = 0.030). But the explanatory power is little (R-squared = 0.023), and therefore it is important to include more variables to find out whether the significant negative effect of product failure on the keep-or-return decision still holds. We cannot support nor reject H1 yet. The

relationship between product failure and the keep-or-return decision is visualized in figure 7 of appendix D.

Variable Unstandardized Coefficient

Standard Error Standardized Coefficient

t-value p-value

Product failure -0.595 0.272 -0.152 -2.186 0.030*

Table 5: The effect of product failure on the keep-or-return decision in a single regression

Dependent variable: Keep-or-return decision Predictor: Product failure

4.4 Moderator effect: hedonically and utilitarian superior products

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14 0.838). Including the HED/UT scale in the regression resulted in the fact that product failure is not significantly affecting the keep-or-return decision. This is a first reason to investigate the effect of product failure in an alternative model. We do not support nor reject H1 yet. But we can conclude

that the HED/UT scale is not moderating the relationship between product failure and the keep-or-return decision, and reject H2 and H3.

Standard Error Standardized Coefficient t-value p-value Product failure -0.987 1.877 -0.252 -0.526 0.600 HED/UT -0.370 0.347 -0.106 -1.065 0.288 Product failure * HED/UT 0.099 0.484 0.99 0.205 0.838

Table 6: Multiple regression model, HED/UT as a moderator

Dependent variable: Keep-or-return decision

Predictors: Product failure, HED/UT scale, Interaction: Product failure * HED/UT scale

4.5 Mediator effect: endowment effect

Here we examine the second part of our conceptual model, namely the sense of ownership as a mediator between HED/UT and the keep-or-return decision. We used the steps of Baron and Kenny (1986) to investigate a possible mediation. First we executed a linear regression with the HED/UT scale as an independent variable and the keep-or-return decision as a dependent variable, to measure the direct effect of the HED/UT scale. The results are to be found in table 7 below. The HED/UT scale is not significantly affecting the keep-or-return decision (p = 0.219). The model has little explanatory power (R-squared = 0.007).

Variable Unstandardized Coefficient Standard Error Standardized Coefficient t-value p-value

HED/UT -0.300 0.244 0.086 -1.232 0.219

Table 7: Direct effect of the HED/UT scale on the keep-or-return decision

Dependent variable: Keep-or-return decision Predictor: HED/UT scale

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15 Variable Unstandardized Coefficient Standard Error Standardized Coefficient t-value p-value

HED/UT -0.183 0.202 -0.064 -0.909 0.365

Table 8: Direct effect of the HED/UT scale on the sense of ownership

Dependent variable: Sense of ownership Predictor: HED/UT scale

We also measured the direct effect of the sense of ownership, through a linear regression with the sense of ownership as an independent variable and the keep-or-return decision as a dependent variable. The results are to be found in table 9 below. The sense of ownership is significantly affecting the keep-or-return decision (p = 0.000). The model has an R-squared of 0.146. The relationship between the sense of ownership and the keep-or-return decision, in a single regression, is visualized in figure 8 of appendix D.

Sense of Ownership

0.462 0.079 0.382 5.876 0.000*

Table 9: Direct effect of the sense of ownership on the keep-or-return decision

Dependent variable: Keep-or-return decision Predictor: Sense of ownership

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16 Variable Unstandardized

Coefficient

Standard Error Standardized Coefficient t-value p-value HED/UT -0.216 0.226 -0.062 -0.955 0.341 Sense of ownership 0.458 0.079 0.378 5.802 0.000*

Table 10: The effect of HED/UT on the keep-or-return decision, controlled by the sense of ownership

Dependent variable: Keep-or-return decision Predictors: HED/UT scale, Sense of ownership *Significant at a level of α = 0.05

Finally, we also performed a Sobel test (Sobel, 1982). This test enables us to check whether an indirect effect between the HED/UT scale and the keep-or-return decision exists. This method directly assesses whether an indirect effect exists, and therefore it does not measure the direct effect of the HED/UT scale on the keep-or-return decision. The results (in table 11 below) tell us that the sense of ownership is not a mediator between the HED/UT scale and the keep-or-return decision (p = 0.376). Therefore we can reject H4. In the next subsection we will test two alternative models,

including product failure and the sense of ownership as dependent variables.

Indirect effect Value Standard Error 2.5th percentile 97.5th percentile z-value p-value a: HED/UT on Sense of ownership -0.084 0.0947 -0.270 0.102 -0.885 0.376 b: Sense of ownership on Keep-or-return decision

Table 11: The mediator effect of the sense of ownership between HED/UT and the keep-or-return decision

a: Dependent variable: Sense of ownership Predictor: HED/UT scale

b: Dependent variable: Keep-or-return decision Predictor: Sense of ownership

4.6 Alternative models

Let us sum up what we found out so far. The manipulation regarding product failure was successful, but the manipulation regarding hedonically and utilitarian superior products failed. Our conceptual model does not fit, since hedonically and utilitarian superior products do not moderate the

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17 As we mentioned above, Wood (2001) tells us that the endowment effect (caused by the sense of ownership) is affecting the keep-or-return decision. Through alternative models A and B (below in figure 2 and 3) we will investigate whether product failure has a significant effect on the keep-or-return decision, and whether the sense of ownership is significantly affecting the relationship between product failure and the keep-or-return decision. We propose model A in which the sense of ownership is solely affecting the keep-or-return decision, and model B in which the sense of

ownership is moderating the relationship between product failure and the keep-or-return decision.

Figure 2: Alternative model A, with product failure and the sense of ownership as independent variables

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18 4.6.1 Model A

Table 8 below, shows that both product failure (p = 0.011) and the sense of ownership (p = 0.000) have a significant positive effect. These results are as expected, after leaving out the HED/UT scale. The model is overall significant and has an explanatory power R-squared = 0.173.

Product failure -0.642 0.251 -0.164 -2.558 0.011*

Sense of ownership 0.469 0.078 0.387 6.034 0.000*

Table 12: The effect of product failure and the sense of ownership in a multiple regression

Dependent variable: Keep-or-return decision Predictors: Product failure, Sense of Ownership *Significant at a level of α = 0.05

4.6.2 Model B

Also model B is overall significant (p = 0.000) and the explanatory power is R-squared = 0.189. Interesting is the fact that in this model the effect of product failure is not significant anymore (p = 0.307, see table 9 below). Also its coefficient turned out to be positive. The effect of the sense of ownership is significant again (p = 0.000). Also the interaction between product failure and the sense of ownership is significant (p = 0.045). We found out that the sense of ownership is indeed affecting the relationship between product failure and the keep-or-return decision. Therefore we conclude that model B fits best.

Standard Error Standardized Coefficient t-value p-value Product failure 0.755 0.737 0.193 1.024 0.307 Sense of ownership 0.620 0.108 0.512 5.760 0.000* Product failure * Sense of ownership -0.311 0.154 -0.403 -2.014 0.045*

Table 13: The effect of product failure and the sense of ownership in a multiple regression

Dependent variable: Keep-or-return decision

Predictors: Product failure, Sense of ownership, Interaction: Product failure * Sense of ownership *Significant at a level of α = 0.05

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19 no failure condition. Overall we see a lower keep-or-return decision score for the product failure condition, but the sense of ownership affects the effect of product failure. This effect is weakened, caused by an increase in the level of ownership a consumer experienced.

Figure 4: Graph with the effect of product failure and sense of ownership on the keep-or-return decision

4.7 Summary of the results

We can partly reject H1. Product failure seems to have a negative effect on the keep-or-return

decision, but this effect depends on the level of ownership a consumer experiences. The direct effect of product failure is not significant. Through the interaction with the sense of ownership we see that product failure has a significant negative effect on the keep-or-return decision. We can reject H2,

since we found no evidence that hedonically and utilitarian products are affecting the keep-or-return decision. We can also reject H3. No evidence was found for a significant interaction effect between

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20 utilitarian superior products and the keep-or-return decision. Instead, the sense of ownership is moderating the relationship between product failure and and the keep-or-return decision.

5. General discussion

The results of our study will be summarized and discussed in this chapter. Our aim is to answer the research questions (from chapter 1) and come up with conclusions regarding product returns in an online environment. In subsection 5.1 the research questions will be answered. In subsection 5.2 the managerial implications will be discussed, followed by the recommendations for future research are to be found in subsection 5.3.

5.1 Conclusions

The aim of this subsection is to answer the sub questions, the main question, and explain the results. The results indicate that product failure does have an effect on the keep-or-return decision, but it is strongly affected by the sense of ownership.

1. In an online shopping condition, does product failure result in more product returns?

Yes, but the effect of product failure is affected by the level of ownership consumers experience after an order. Consumers may do not like the fact that a product appears to have an error or a mistake, but since they have a sense of ownership towards the ordered product they feel less urgency to return the product.

2. In an online shopping condition, are utilitarian superior products more likely to be returned than hedonically superior products?

Our study is not able to answer this question. We did not find any support for the hypothesis that utilitarian superior products are more likely to be returned, nor does literature suggest it. Future research is required to investigate differing return rates regarding hedonically and utilitarian superior products.

3. In an online shopping condition, do hedonically and utilitarian superior products moderate the relationship between product failure and the keep-or-return decision?

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21 utilitarian superior products. Future research is required to investigate the possible moderating effect hedonically and utilitarian superior products.

4. In an online shopping condition, does the sense of ownership mediate the relationship between hedonically and utilitarian superior products and the keep-or-return decision? No, we did not find evidence suggesting that the sense of ownership mediates the relationship between hedonically and utilitarian superior products and the keep-or-return decision. What we did find is that the sense of ownership has a significant effect on the keep-or-return decision and is moderating the relationship between product failure and the keep-or-return decision. The sense of ownership decreases the negative effect of product failure.

In an online shopping condition, are consumers more likely to return a utilitarian superior product than a hedonically superior product?

The answer is “no”. A consumer purchases a product online. After the order has been placed the endowment effect occurs, and the consumer feels a certain level of ownership towards the ordered item. After receipt s/he notices the product failure which negatively effects satisfaction regarding the ordered item. But, as Sen and Johnson (1997) mentioned in their research, the sense of ownership makes it more difficult for the consumer to return the product.

This research shows that the endowment effect is also present in online shopping. In our study the delay between order and receipt – causing the endowment effect (Wood, 2001) – was relatively short, but still the endowment effect occurred. Even more interesting is the fact that the endowment effect, caused by the sense of ownership a consumer experiences, affects the decision to keep or return a product in such way that it makes consumers decide to keep a product containing a failure.

Two alternative models were tested. This resulted in model B (see figure 4 below) having the best fit. The aim of this research was to investigate the effect of product failure on the keep-or-return decision, and whether this relationship was affected by hedonically or utilitarian superior products (which effect on the keep-or-return decision could be mediated by the sense of ownership). Concluding with this alternative model could have to do with the failed manipulation for a

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Figure 4: Model B, with the sense of ownership as a moderator

5.2 Managerial implications

After ordering a product online, and before receipt, consumers already feel a sense of ownership towards the ordered product. A relatively small failure (in our study a missing hiking map in a digital travel guide) can be overcome by the endowment effect. Although consumers notice that product failure occurs, the sense of ownership they experience after ordering a product, can make them choose to keep the ordered product instead of returning it. This outcome illustrates that predicting how consumers will react in case of product failure is complicated. What we do know is that the endowment effect plays an important role.

To be able to reduce return rates, e-retailers should focus their efforts on strengthening the endowment effect, by stimulating the sense of ownership consumers experience after a purchase. Kahneman et al. (1990) found that the value consumers assign to a product increases substantially as soon as they are given the product. In most cases it is not possible for e-retailers to send samples to their prospects. We can imagine that the costs for sending samples in certain product categories can become quite high, making it more attractive to risk a certain rate of returns.

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5.3 Future research

Future research should focus on the differences in return rates between hedonically and utilitarian superior products more closely. It is important to include multiple products differing on their hedonic and utilitarian benefits. Besides multiple products, elements in the shopping conditions should vary, to be able to see what elements consumers are susceptible for. Our research for example indicates that consumers mainly focus on the ordered product, instead of taking into account the product description on a web page.

First, we recommend to find out when consumers focus on the product, and when they focus on other elements, in an online shopping environment. This provides researchers insights on how to design a study in which participants will focus on other elements than the product itself, and makes it possible – and that is our second recommendation – to investigate what elements in the online purchasing cycle make consumers perceive a product as hedonically or utilitarian superior. Finally, this would enable researchers to study the differences in the keep-or-return decision for hedonically and utilitarian superior products.

But more factors play a role in investigating the differences for hedonically and utilitarian superior products. An important fact is that consumer preferences differ for acquisition and forfeiture choices. For an acquisition choice consumers prefer a utilitarian product, and for a forfeiture choice (Dhar & Wertenbroch, 2000). Interesting to find out is whether this holds in an online shopping condition, and what the differences in return rates are for acquisition and forfeiture choices. We recommend to execute multiple studies on product return behavior, including an acquisition or forfeiture choice, and a hedonically or utilitarian superior product. Finally, this provides insights on the effects of the decision task (acquisition or forfeiture choice), hedonically and utilitarian superior products, and a combination of these two variables, on the keep-or-return decision. It will explain whether hedonically or utilitarian superior products have higher return rates, and why this is the case.

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Appendix A

Questionnaire

Welcome to my online questionnaire. I would like to thank you in advance for participating and helping me with my research for my master thesis.

Below you will find a scenario with accompanying instructions. You are asked to read the scenario, follow the instructions and answer the questions.

Taking part in this study takes approximately 5 minutes. Your participation will be anonymous and the results will solely be used in favor of this study.

[Start questionnaire]  Next page

Scenario

You are planning to go on a holiday in the Ardennes (Belgium). This results in you surfing the web, reading about the Ardennes and looking at pictures of sights in this region. Accidently you end up on a web page offering a travel guide about the Ardennes.

Click for the web page

 Next page

[Web page containing the front page of the travel guide and its description]

You decide to order the travel guide. You click on the button ‘Add to Cart’, go to the checkout and purchase the product.

Click on the web page

 Next page

You received your ordered travel guide and you decide to check the travel guide. After you are finished you can continue the survey.

Click to get your travel guide

 Next page

[Pop-up of a message from the e-retailer] Experimental condition 1:

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29 Thank you for ordering the travel guide ‘Reisgids Ardennen’! You are about to experience an exciting journey along the special sight of the Ardennes. Your stay will be a true delight.

We hope you enjoy your order. Unfortunately the hiking map for the city of Namen is missing.

This is an automatically generated message to confirm receipt of your order. You cannot reply to this e-mail.

Yours sincerely,

Customer service”

Experimental condition 2: “Dear sir/madam,

Thank you for ordering the travel guide ‘Reisgids Ardennen’! You are about to experience an exciting journey along the special sight of the Ardennes. Your stay will be a true delight.

We hope you enjoy your order.

Yours sincerely,

Customer service”

Experimental condition 3: “Dear sir/madam,

Thank you for ordering the travel guide ‘Reisgids Ardennen’! This practical guide guides you along the sights of the Ardennes, in order to make you journey a success.

We hope you enjoy your order. Unfortunately the hiking map for the city of Namen is missing.

Yours sincerely,

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30 Experimental condition 4:

“Dear sir/madam,

Thank you for ordering the travel guide ‘Reisgids Ardennen’! This practical guide guides you along the sights of the Ardennes, in order to make you journey a success.

We hope you enjoy your order.

Yours sincerely,

Customer service”

 Next page

Indicate whether you agree or disagree with the following statement.

Strongly disagree Strongly agree

1. I would like to keep the ordered product. 1 2 3 4 5 6 7

2. Explain your choice:

………..

 Next page

Indicate whether you agree or disagree with the following statements. Note: answer this question imagining the moment right after ordering the travel guide. You ordered the product, after which you thought…

3. I feel like this is my travel guide. 1 2 3 4 5 6 7

4. I feel a very high degree of personal ownership of the

travel guide. 1 2 3 4 5 6 7

5. I feel like I own the travel guide. 1 2 3 4 5 6 7

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31 Indicate whether you agree or disagree with the following statements.

6. The ordered travel guide meets my expectations. 1 2 3 4 5 6 7

7. The ordered travel guide contains errors. 1 2 3 4 5 6 7

8. The ordered travel guide contains mistakes. 1 2 3 4 5 6 7

 Next page

9. Below you can find several scales. Please indicate how you would rate the kind of product described in the scenario.

Not fun Fun

Effective Ineffective

Dull Exciting

Helpful Unhelpful

Unpleasant Pleasant

Functional Not functional

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12. Nationality: Belgian

Dutch

Other, namely…

13. Highest education completed: Lower secondary education Higher secondary education University of applied sciences University

Other, namely …

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Appendix B

Web pages

Figure 1: Hedonically superior web page

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Appendix C

Gender Age Nationality Level of education

N Valid 203 203 203 203 Missing 1 1 1 1 Mean 1,60 35,94 1,84 3,36 Median 2,00 25,00 2,00 4,00 Mode 2 22 2 4 Std. Deviation ,492 16,499 ,391 ,811 Variance ,242 272,224 ,153 ,657 Range 1 56 2 4 Minimum 1 17 1 1 Maximum 2 73 3 5 Sum 324 7296 374 682

Table 1: Respondent statistics

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Figure 4: Distribution by age

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Appendix D

Figure 7: Histogram of the effect of the product failure conditions on the keep-or-return decision

Figure 8: Graph of the single linear regression between the sense of ownership and the keep-or-return decision

Product failure and product returns in online shopping: the role of hedonically and utilitarian superior products