To Keep or Not to Keep: Effects of Online Customer Reviews on Product Returns

While many studies examined the effects of online customer reviews (OCRs) on product sales, a clear understanding of the effects of OCRs on product returns is lacking. This study examines the impact of OCRs characteristics (valence, volume, and variance) on return decisions with a rich multi-year dataset from a major online retailer covering the electronics and furniture category. The main finding is that overly positive review valence (i.e., higher than the long-term product average), induces more purchases, but also more returns. An explanation for these findings is that OCRs help to form product expectations at the moment of purchase. Therefore, the purchase probability increases but the high expectations due to overly positive reviews may not be met, which results in negative expectation disconfirmation and consequently increases return probability as well. The effect of review valence on returns is stronger for novice buyers and for cheaper products. We further find that review volume and variance mainly affect purchase decisions, and have little to no effect on product returns. This study thus demonstrates that products returns should be considered when examining OCR effects, especially because overly positive reviews may hinder a retailer's financial performance, due to large reverse logistics costs associated with product returns.