Peter Zubcsek "Product returns, service pauses, and lifetime value in subscription retailing"

The $700B subscription economy faces persistently high churn. One retention strategy is to allow subscribers to pause their plans. We assess the profitability of this practice using transaction data from 28,212 customers of an apparel box subscription retailer. Each month, subscribers receive a curated box for a fee that is credited toward any purchases; unwanted items can be returned at no cost. At any time after their first month, customers may pause their subscription for one or two months. We estimate a hidden Markov model to link revenues, churn, and customer lifetime value (CLV) to product return behavior. Our results show that: (1) product returns and residual CLV have a non-monotonic relationship—zero-return customers have 25–40% lower residual CLV than some selective returners, indicating returns can signal engagement, not only dissatisfaction; (2) this relationship varies by tenure, with return rates’ effect on CLV differing by up to 30% between months one and two; and (3) allowing pauses is profitable under conservative assumptions grounded in market realities. This study advances understanding of subscription retailing by demonstrating the profit potential of pause policies, reframing product returns as a behavioral indicator of CLV, and providing retention strategies for practitioners.

Peter Pal Zubcsek is Senior Lecturer of Marketing at the Coller School of Management, Tel Aviv University. Peter’s research agenda focuses on mobile technologies and the role of social networks in consumer interactions, with applications to customer relationship management, new product diffusion, new product development, pricing, and community sociology. Peter serves on the Editorial Board at Journal of Interactive Marketing. His work has been published in the Journal of Marketing Research, Journal of Marketing, Journal of Consumer Psychology, Journal of Personality and Social Psychology, Journal of Interactive Marketing, Quantitative Marketing and Economics, and Social Networks. Prior to joining the Coller School, Peter worked as Assistant Professor of Marketing at the University of Florida. Peter holds a Ph.D. in Management from INSEAD and a M.Sc. in Informatics from the Budapest University of Technology and Economics. His work experience prior to joining INSEAD involves Global Market Insite, Andersen Business Consulting, Simon Fraser University and the Computer and Automation Institute of the Hungarian Academy of Sciences. Competing for Hungary, in 1998 Peter won a silver medal at the 39th International Mathematical Olympiad in Taipei, Taiwan R.O.C.