Consumer Return Policies in Omnichannel Operations

62 Pages Posted: 3 Oct 2017 Last revised: 2 Sep 2019

See all articles by Leela Nageswaran

Leela Nageswaran

University of Washington - Michael G. Foster School of Business

Soo-Haeng Cho

Carnegie Mellon University - Tepper School of Business

Alan Andrew Scheller-Wolf

Carnegie Mellon University

Date Written: August 29, 2019

Abstract

We study the pricing and return policy decisions of an omnichannel retailer serving customers who differ in how they realize their uncertain valuation for a product -- by inspecting in-store before purchase, or by purchasing online and possibly returning misfit products. Customers may return misfit products either to stores for a full refund or online as per the firm’s return policy. We model prices to be identical across channels, allow cross-channel returns, and endogenize customers’ purchase and return decisions, capturing typical features of an omnichannel setting. Our analysis helps explain why some omnichannel firms choose full refunds while others charge a fee for online returns: We find that omnichannel firms with good salvage partners for online returns (e.g., Nordstrom) as well as those with more store-based customers (e.g., Macy’s) should offer full refunds. Similarly, firms are incentivized to offer full refunds for products that customers are more likely to inspect in-store (e.g., Express for footwear). In contrast, firms with a significant store network and better in-store salvage opportunities (e.g., J.C. Penney) might be better off charging a fee for online returns in order to nudge customers to return in-store. Finally, an omnichannel firm should be cautious both in making the return process more convenient and in improving accessibility to its stores, as these seemingly beneficial policies, if combined with a partial refund policy, could undermine the firm's overall profit.

Keywords: Product Returns, Retail Operations, Omnichannel, OM-Marketing Interface

Suggested Citation

Nageswaran, Leela and Cho, Soo-Haeng and Scheller-Wolf, Alan Andrew, Consumer Return Policies in Omnichannel Operations (August 29, 2019). Available at SSRN: https://ssrn.com/abstract=3046206 or http://dx.doi.org/10.2139/ssrn.3046206

Leela Nageswaran (Contact Author)

University of Washington - Michael G. Foster School of Business

Seattle, WA 98195-3226
United States

Soo-Haeng Cho

Carnegie Mellon University - Tepper School of Business ( email )

Pittsburgh, PA 15213-3890
United States

Alan Andrew Scheller-Wolf

Carnegie Mellon University ( email )

Pittsburgh, PA 15213-3890
United States

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