Public Relations & Social Marketing Insight

Product returns are a costly problem for retailers. It has been estimated that U.S. customers return a hefty $264 billion worth of products annually—almost 9% of total sales. In online retailing, return rates are an even bigger problem. A 2013Wall Street Journal article indicated that as much as a third of internet purchases are returned, and studies have found that handling these returns can cost between $6 and $18 per item.

In online retailing, most products are returned because customers aren’t satisfied with what they get—but this isn’t necessarily due to product defects. Because customers can’t physically evaluate and test products before purchasing them, it’s harder for them to set the right expectations, and easier to be disappointed by a product. This is why retailers provide information—product descriptions, pictures, and videos—to help customers make more informed purchase decisions.

This is also why online customer reviews have become such an important source of product information. These are typically characterized by the average star rating (“valence”), the number of reviews (“volume”), and the variance in star ratings (“variance”). Since online reviews affect people’s likelihood to buysomething, we wanted to test whether reviews also influence their likelihood to return it....

A one-star rated product listed on Amazon.com Inc.’s site sells better than a product with no reviews or ratings at all, said Chad Brandon, key account manager of Amazon for athletic footwear manufacturer Asics.

When it comes to new products on an online marketplace, reviews matter more than price, said Fahim Naim, founder of e-commerce consulting firm eShopportunity. Those insights were shared at the “Amazon & Me” workshop this week at the Internet Retailer Conference & Exhibition in Chicago.

Brandon and Nahim both suggested that first-party Amazon sellers, which are manufacturers that sell wholesale to Amazon, utilize Amazon Vine. The Amazon service puts products in front of customers to review. Amazon selects customers based on their reviewer ranks, "which is a reflection of the quality and helpfulness of their reviews as judged by other Amazon customers," according to Amazon. Sellers pay Amazon a fee for the service and can't influence whether the rating is positive or negative. Customers aren't paid to write reviews....