How Consumers Spend Monetary Refunds of Returns

For every $100 spent on retail industry, consumers on average return $14.50 value of products to retailers (National Retail Federation, 2023), 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. Specifically, 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 experience a lower 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 are more sensitive to the pain of paying (i.e., “tightwads”) than those who are less sensitive (i.e., “spendthrifts”). In sum, individuals have a different psychological experience when they spend return refunds versus their regularly available monetary source.