Lenient vs. stringent returns policies in the presence of fraudulent returns: The role of customers’ fairness perceptions

Abstract

Offering lenient returns policies is a common post-sales service strategy that retailers use to ensure customer satisfaction. Some customers, however, abuse these lenient returns policies, which leads to fraudulent returns. In response, retailers take some strategic actions, such as increasing retail prices to offset the loss, or imposing restrictions on otherwise lenient returns policies. This paper argues that customers will have different fairness perceptions to retailers’ strategic actions, which can further influence their shopping behaviors. Our empirical results show that customers preferred more stringent returns policies to counter fraudulent returns and perceived restrictions to be fairer if used. Restrictions targeting perpetrators of fraudulent returns, either monetary or non-monetary, were perceived to be fairer than those applied to all customers. Our findings provide justification and support for retailers to strategically restrict product returns. Managerial insights from our study also help retailers identify effective instruments in the design of customer-friendly returns policies to reduce fraudulent returns.