Opportunistic Returns and Dynamic Pricing: Empirical Evidence from Online Retailing in Emerging Markets

49 Pages Posted: 19 Oct 2018

Date Written: September 14, 2018

Abstract

We investigate how dynamic pricing can lead to more product returns in the online retail industry. Using detailed sales data of more than two million transactions from the Indian online retail market, where price promotions are very common, we document two types of strategic customer behavior that have not been considered in previous research. First, customers who monitor product prices after purchase may initiate opportunistic returns because of price drops.

Second, customers who anticipate a future return may strategically choose a payment method that facilitates product returns. Our logistic regression models indicate that (1) realized post-purchase price drops lead to a higher probability of return, and (2) anticipated price drops after purchase lead to a higher probability of using cash on delivery, a payment method with a lower return cost for consumers. Our findings are robust to alternative model specifications and sample selection procedures. We demonstrate that an optimal pricing policy should take into consideration the potential costs of two types of strategic customer behavior: opportunistic returns and strategic choice of payment method.

Keywords: cash on delivery; dynamic pricing; emerging markets; online retail; opportunistic returns; payment methods; strategic customer behavior

Suggested Citation

Bandi, Chaitanya and Moreno, Antonio and Ngwe, Donald and Xu, Zhiji, Opportunistic Returns and Dynamic Pricing: Empirical Evidence from Online Retailing in Emerging Markets (September 14, 2018). Harvard Business School Marketing Unit Working Paper No. 19-030; Harvard Business School Technology & Operations Mgt. Unit Working Paper No. 19-030. Available at SSRN: https://ssrn.com/abstract=3266474 or http://dx.doi.org/10.2139/ssrn.3266474

Chaitanya Bandi

Operations Department, Kellogg School of Management, Northwestern University ( email )

2001 Sheridan Road
Evanston, IL 60208
United States

Antonio Moreno

Harvard University - Technology & Operations Management Unit ( email )

Boston, MA 02163
United States

HOME PAGE: http://www.hbs.edu/faculty/Pages/profile.aspx?facId=1029325

Donald Ngwe (Contact Author)

Harvard University - Business School (HBS) ( email )

Soldiers Field Road
Morgan 270C
Boston, MA 02163
United States

Zhiji Xu

Northwestern University - Kellogg School of Management ( email )

2001 Sheridan Road
Evanston, IL 60208
United States

HOME PAGE: http://www.kellogg.northwestern.edu/faculty/zhiji-xu

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