From Stopping to Shopping: A Field Experiment on Free Return and Free Shipping Retargeting Policies in Online Retail Operations

Problem definition : Online retailers face the challenge of converting website traffic into actual purchases and profits. Specifically, the study examines how effective different forms of retargeting strategies are for engaging consumers who visit online stores but leave without making a purchase. Methodology/results : A field experiment was conducted to evaluate the impact of retargeting strategies offering free shipping (FSR) and free returns (FRR) on customer purchasing behavior and profitability. The key findings reveal that simple product reminders do not significantly boost purchases. In contrast, FSR and FRR implemented late in the shopping process led to significant increases in both purchase rates (18.6% and 31.6%) and targeting profitability (28.2% and 37.8%), respectively. Additional analyses with advanced machine learning methods of causal forest algorithms identified significant heterogeneity of the FSR and FRR effects. FRR was particularly effective among younger customers with less experience on the platform and when the abandoned product was of higher value. In contrast, FSR was more effective among older customers with longer tenure and when the product price was lower. Managerial implications : The findings benefit academics, managers, and decision makers by emphasizing the need for personalized retargeting strategies that address customers’ perceived risks, particularly in the later stages of the shopping process. The research highlights the importance of tailoring retargeting strategies to specific customer profiles to maximize effectiveness and retail profitability.