Americans return approx. 10% of their Christmas gifts. Overall, people don’t just get their money back. They use the refund to buy other things (usually from the same shop – I assume). Interestingly, these new purchases are, on average, 60$ above the full amount they received for the returned item.
In short, if someone receives a gift that costs 100$ and returns it, that same person will buy another product worth 160$ (100$ refund plus 60$ from their own money).
I’m wondering how does this affect (re)purchasing decisions and how does it affect the perception of the social act of gift giving and receiving. In other words, does it (still) feel like receiving a gift? The two questions are, in fact, inter-related.
First, if someone gets 100$ worth of store-credit, then, most likely, that person will want to buy something that is priced at least at 100$. After all, buying something that is priced at 90$ would involve losing 10$ (in store credit) and, because of loss aversion, that simply makes no sense. This holds true even if the person would be happier with the 90$ product than with the 100$ one (which she received as a gift).
Second, if you return a gift worth 100$ and you get store-credit worth 100$, then buying something priced above 100$, say 160$, makes it 100$ cheaper. Who wouldn’t want to be able to buy something worth 160$ and just pay 60$?
Third, if you return a gift, receive store credit and subsequently buy something else for which you partially pay with your own money (that 60$ extra from the 100$ refund), it might not feel like you received a gift.
Last Christmas I received a very nice leather bracelet for a Fitbit Charge 2. However, at the time, I had a Fitbit Charge 1 which doesn’t allow for the bracelet to be changed. I returned the gift and received store credit (on Amazon). I could have used that amount as a “beginning” for buying a Fitbit Charge 2, but since I would cover part of the price out of my own money, I’m afraid I wouldn’t see the new tracker as a gift from the person who gave me the leather bracelet.
I also suspect that the not perceiving it as a gift effect would get stronger over time. Probably 3-4 months after buying the new tracker, I’ll just remember buying a new Fitbit.
There is, however, something even worse that could happen. That is: returning a gift and using the refund for mundane purchases. In the example above, this would be me using the Amazon store credit for regular purchases such as books or coffee (I’m a coffee snob and buy fancy coffee through Amazon). While this might be more practical (getting more utility for your cash), it would completely shatter the whole idea of receiving a gift.
Certainly, for retailers returning gifts is good business (since they end up selling more).
Maybe retailers could do something to preserve the perception of receiving a gift. A simple thing would be to gift-wrap the new purchase.