How price and promotions influence product returns
of utilitarian and hedonic products
in the online retail industry
Herre Zonderland - S3534715
Background
❏ Online and offline shopping environments are not the same ❏ Product returns are higher for online retailers
Theoretical framework
❏ How do the effects of price and promotions on
product returns differ across utilitarian and hedonic products?
❏ Effect of price
❏ Effect of promotion ❏ Effect of discount depth
❏ Utilitarian versus hedonic products
Methodology
❏ Aim is to look at the effects of the variables on a binary decision (return: yes / no) ❏ Binary logistic regression
Results Model 1
❏ Price - 4 out of 6 categories show a positive
relationship with price, seems truer for the
utilitarian categories.
❏ Promotion - Vacuum cleaners (utilitarian) as
expected, whereas tablets and audio (hedonic) show an opposite effect.
❏ Discount depth - Negative effect true for all
Results Model 2
❏ Model 2 focuses on the dummy variable that indicates whether a category is hedonic or utilitarian.
❏ When a category is hedonic (compared to
utilitarian), the odds of the return
probability increase by 340%.
❏ Plausible effect based on literature (“Utilitarian more task-related, clear
Results Model 3
❏ Price interaction: effect of price becomes
stronger for hedonic products compared to
utilitarian products.
❏ Promotion interaction becomes
insignificant. Whether category is hedonic or utilitarian does not influence relationship between promotion and product returns.
❏ Discount depth interaction: effect of
Conclusions
❏ Although results vary across categories, higher priced products may be returned more quickly than their cheaper counterparts.
❏ When promoted, hedonic products show higher return probability compared to utilitarian
products.
❏ Return probability decreases as discount depth increases, effects slightly bigger for hedonic products.
Managerial implications
❏ Especially for higher priced products, try to decrease fit uncertainty (i.e., more detailed
product information, usage situations, reviews). ❏ Be considerate when promoting hedonic
products. Promoting utilitarian products seems like the safer choice.
❏ Experiment with how prominently discounts (and discounted items) are displayed on website.
Managerial relevance
Academic relevance
❏ Product returns are costly, especially for online retailers.
❏ Study increases knowledge about how price and promotions influence product returns, and thus, profitability.
❏ Retailers should facilitate a good fit between what customers expect and what they perceive, especially for hedonic products.
❏ Growing domain of product returns, but little known about differences between utilitarian and
hedonic products in this regard.
❏ Study shows that it is important to consider ‘type of product category’ when investigating product returns.
Limitations and recommendations
❏ Labeling product categories
❏ Expand to and analyze more product categories
❏ Types of promotions / discounts
❏ Broader promotional information
❏ Omitted-variable bias
❏ Demographic and customer-specific information
❏ Generalizability
References
❏ Babin, B.J., Darden, W.R., & Griffin, M. (1994). Work and / or fun: measuring hedonic and utilitarian shopping value. Journal of Consumer Research, 20(4), 644-656.
❏ Fok, D. (2017). Advanced Individual Demand Models. In Advanced Methods for Modeling Markets (pp. 31-86). Springer, Cham.
❏ Kahneman, D., & Tversky, A. (1979). Prospect theory: An analysis of decision under risk. Econometrica, 47(2), 363-391.
❏ Saleh, K. (2016). E-commerce product return rate - Statistics and trends. Retrieved September 25, 2019, from https://www.invespcro.com/blog/ecommerce-product-return-rate-statistics/
