The Impact of Online Product Reviews on Product Returns

Although many researchers in Information Systems and Marketing have studied the effect of product reviews on sales, few have looked at their effect on product returns. We hypothesize that, by affecting the quality of purchase decisions, product reviews influence the probability of the eventual return of the purchased products. We elaborate this hypothesis by developing an analytical model that shows how changes in the precision of product quality and fit information affect the return probabilities of risk- averse, but rational, consumers. We empirically validate the predictions of our theory using a transaction level dataset from a multi-channel, multi-brand specialty retailer operating in North America. Harnessing data on multiple purchases and returns of the same products, but with varying sets of product reviews over a period of two years, we find that the availability of higher volumes of reviews, as well as review bodies that contain a higher percentage of reviews that are designated as ‘helpful’ by consumers, lead to lower incidence of product returns, after controlling for customer, product and other context-related factors. These results are consistent with the predictions of our theoretical model, and suggest that online reviews indeed help consumers make better purchase decisions leading to lower product returns.