Return Policies and the Optimal Level of “Hassle” Scott Davis, Michael Hagerty, and Eitan Gerstner 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. © 1998 Elsevier Science Inc. Keywords: Return policies; Money-back guarantees; Customer satisfaction JEL classification: M31, L15, D61 “Once you have their money, you never give it back.” - First Ferengi Rule of Acquisition (From Star Trek: Deep Space Nine, episode “The Nagus”) “If they want their money back, give it to them.” - First Ferengi Rule of Acquisition (Revised)² (From the Star Trek: Deep Space Nine, episode “The Prophet Motive”) I. Introduction Return policies which allow consumers to easily return products for a refund are com- monly offered by retailers [Schmidt and Kernan (1985); Hart (1988); Davis et al. (1985); Moorthy and Srinivasan (1995)]. However, recently, retailers have begun to scale back generous return policies in favor of more restrictive ones. Longo (1995) has noted that: The easy, flexible return policies you’ve come to expect are quietly vanishing at many chain stores that sell home electronics, including Wal-Mart, Target, Best Buy, and Circuit City. Those retailers and others are cracking down on what they say are excessive home-electronics returns. So find out before you buy The first author is affiliated with Strategic Marketing Decisions, Sacramento, California; the second and third authors are affiliated with the University of California at Davis, Graduate School of Management, Davis, California. Address correspondence to: Dr. M. R. Hagery, University of California at Davis, Graduate School of Management, One Shields Avenue, Davis, CA 95616. Journal of Economics and Business 1998; 50:445– 460 0148-6195 / 98 / $19.00 © 1998 Elsevier Science Inc., New York, New York PII S0148-6195(98)00013-7