Return Strategy and Channel Pricing for Omni-Channel Retailers Considering Heterogeneous Customer Perceptions

Abstract

This research delves into the interplay between return losses, customer perceptions of online products, and their influence on omnichannel retailers’ optimal return strategy and channel pricing. The study assumes consumers decide their purchase channels based on perceived utility yet adhere to the retailer's stipulated return strategy. To this end, we introduce three distinct return strategies (returning products via the original purchase channel, offline return, and online return) for omni-channel retailers.  We aims to identify the most profitable approach by considering diverse return losses associated with each channel. Our analysis identifies scenarios in which a particular return strategy either boosts or reduces retailer profit, thereby facilitating optimal channel pricing decisions. Our findings reveal that customers’ purchasing channel selections are affected by their perception, retailer’s return strategy, and net return loss. We also find that no matter what kind of operation scenarios the retailers adopted, the retailers should let all customers return to the online channel to generate maximum profit when the difference between the retailer’s online and offline net return loss is less than the difference between the customer’s offline and online return hassle cost. Conversely, an offline return strategy proves more profitable. Our analytical findings are supported by the numerical simulation, which guide omni-channel retailers' decisions regarding return strategy and channel price.

Keywords: Omnichannel retailer, Return strategy and channel pricing, Online showrooms, Optimization and analysis, Customer perceptions