Return policies and the optimal level of “hassle”

Return policies vary significantly across retailers; some offer very generous return policies, while others impose many restrictions on returns. We employ an analytical model to help identify potential causes for variation among retailers’ return policies. A retailer is more likely to offer a low-hassle return policy when: 1) its products’ benefits cannot be consumed in a short period of time; 2) its product line offers opportunities for cross-selling; and 3) it can obtain a high salvage value for returned merchandise. Data collected from a variety of retail stores gives support to our theoretical predictions.