Improved Decision Support for Product Returns using Probabilistic Prediction

Product returns are not only costly for e-tailers, but the unnecessary transports also impact the environment. Consequently, online retailers have started to formulate policies to reduce the number of returns. Determining when and how to act is, however, a delicate matter, since a too harsh approach may lead to not only the order being cancelled, but also the customer leaving the business. Being able to accurately predict which orders that will lead to a return would be a strong tool, guiding which actions to be taken. This paper addresses the problem of data-driven product return prediction, by conducting a case study using a large real-world data set. The main results are that well-calibrated probabilistic predictors are essential for providing predictions with high precision and reasonable recall. This implies that utilizing calibrated models to predict some instances, while rejecting to predict others can be recommended. In practice, this would make it possible for a decision-maker to only act upon a subset of all predicted returns, where the risk of a return is very high.
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