Generous Returners, Vanishing Refunds: How Consumers Spend Monetary Refunds of Returns

Abstract

For every $100 spent on retail industry, consumers on average return $14.50 value of products to retailers, and they receive the amount they originally paid as a refund. The refund money is fungible, and it can be freely spent on other items or be saved. This research examines consumers' propensity to spend return refunds and the types of products they purchase with return refunds. Across 10 studies (N = 2710), I show that people are more likely to make a purchase and to purchase hedonic products when they are spending return refunds versus money typically used for purchases. Examining the psychological mechanism underlying this effect, I show that consumers are more likely to spend return refunds because they perceive a lower psychological loss and experience less pain of paying when spending refund money than when spending other regularly available monetary sources. Hence, receiving return refunds has a stronger effect on the spending behavior of people who chronically experience an intense pain of paying (i.e., “tightwads”) than those who experience less pain (i.e., “spendthrifts”). Moreover, this research shows that neither payment depreciation nor the perception of a return refund as a windfall fully explain how people choose to spend it. In sum, individuals have a different psychological experience when they spend return refunds versus other conventional monetary sources.