Competitive strategies in the presence of consumers' expected service and product returns

Abstract

<p style='text-indent:20px;'>This paper investigates the optimal strategies and profits of dual channel with product returns in the presence of customers' expected service. Customers' expected service is related to advertising effort and price. We build a two-stage decision making process to analyze the impact of expected services of customers. In addition, we analyze the parameter sensitivity and compare the competitive equilibrium strategies. The results show that the manufacturer will give a lower wholesale price to the retailer in some case. Furthermore, the dual-channel product returns will discourage advertising effort and the service level of the retailer, but it will enable the manufacturer to provide a higher service level. Thus, for managers, the survey of the expected service of customers is very important for the optimal strategies making, and it should not always blindly exploit the retailer's profit for the manufacturer. Finally, when the physical store allows unconditional return of goods, the service level of the online channel will be more considerate.</p>