Product Returns and Lifetime Value in Subscription Retailing
(A2025-125415)

AUTHORS

Ohad Volvovitch, Phd at Tel Aviv University; Peter Pal Zubcsek, Tel Aviv University; THOMAS REUTTERER, WU Vienna University of Economics and Business

ABSTRACT

Abstract Prior research has studied customer lifetime value (CLV) and product returns in isolation, but their dynamic relationship — particularly in subscription retail contexts where returns may signal customer engagement — remains underexplored. To fill this gap, we estimate a hidden Markov model (HMM) on transaction data from 28,923 subscribers of an online apparel retailer. We link expected revenues, churn probabilities, and CLV to observed return rates. Our findings reveal two insights: (1) Returns and CLV have a non-monotonic relationship as zero-return customers exhibit 25-40% lower CLV than some selective returners, suggesting returns reflect engagement, not just dissatisfaction. (2) Customer tenure moderates this effect, with return rates’ impact on CLV varying up to 30% between the first and second subscription months. This research contributes to theory and practice by establishing returns as a behavioral CLV indicator and offering actionable strategies for retention optimization.