Return Strategy and Pricing in a Dual-Channel Supply Chain

International Journal of Production Economics, 215, 153-164, 2019

35 Pages Posted: 20 Apr 2020

See all articles by Guo Li

Guo Li

University of Texas at Dallas; Beijing Institute of Technology

Suresh Sethi

University of Texas at Dallas - Naveen Jindal School of Management

Lin Li

Beijing Institute of Technology

Xu (Gavin) Guan

School of Management, Huazhong University of Science and Technology

Date Written: 2019

Abstract

This study investigates the strategic effect of return policies in a dual-channel supply chain, in which a manufacturer can sell products directly to end customers and indirectly via an independent retailer. The manufacturer decides whether to implement a return policy in either the direct or indirect channel, or in both channels. When the return policy is provided, the cost of returned products has to be covered by the corresponding channel. We consider four possible strategies, including full refund in the direct channel only, full refund in the indirect channel only, full refund in both channels, and no refund in both channels. Given the equilibrium pricing strategies of firms, the preferences of firms over different strategies are determined by comparisons between the anticipated return rate of customers and their perceived value of the return policy. The manufacturer prefers the full-refund policy in both channels when the return rate of the customer is low. Otherwise, the dominant strategy for the manufacturer is the no-refund policy in both channels. The retailer benefits more from the full-refund policy in the indirect channel alone when the return rate is low; otherwise, the retailer prefers the full-refund policy in the direct channel only.

Keywords: Direct Channel, Indirect Channel, Return Policy, Perceived Value of Return Policy, Game Theory

JEL Classification: C61, C10, M11, M20, C73, M30, M31, M37, C71

Suggested Citation

Li, Guo and Sethi, Suresh and Li, Lin and Guan, Xu, Return Strategy and Pricing in a Dual-Channel Supply Chain (2019). International Journal of Production Economics, 215, 153-164, 2019, Available at SSRN: https://ssrn.com/abstract=3560363 or http://dx.doi.org/10.2139/ssrn.3560363

Guo Li

University of Texas at Dallas ( email )

2601 North Floyd Road
Richardson, TX 75083
United States

Beijing Institute of Technology ( email )

5 South Zhongguancun street
Center for Energy and Environmental Policy Researc
Beijing, Haidian District 100081
China

Suresh Sethi (Contact Author)

University of Texas at Dallas - Naveen Jindal School of Management ( email )

800 W. Campbell Road, SM30
Richardson, TX 75080-3021
United States

Lin Li

Beijing Institute of Technology ( email )

5 South Zhongguancun street
Center for Energy and Environmental Policy Researc
Beijing, Haidian District 100081
China

Xu Guan

School of Management, Huazhong University of Science and Technology ( email )

Huazhong University of Science and Technology
School of Management
Wuhan
China

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