Abstract
Return services are increasingly valued by manufacturers, retailers, and customers. In many countries, an offer of money-back guarantee (MBG) is legally binding. In this paper, we discuss how a retailer and manufacturer with a direct channel should choose single or dual MBG and pricing strategies. We identify the conditions under which a retailer or manufacturer should choose a return strategy and show that the handling return loss and the customer return cost in each channel are critical factors that should be considered by the retailer and manufacturer when choosing a return strategy. In addition, the retailer should cooperate with the manufacturer to establish an offline-to-online (O2O) omnichannel to fully benefit from the convenience and advantages of the retail channel. We find that the adoption of the O2O strategy by the retailer in its retail channel always generates profits, while the manufacturer may implement the O2O strategy in its direct channel when the profit from the Internet service is higher than a threshold. Additionally, the impact of various strategies on pricing, market share, and profits is discussed.
Highlights
During the recent Tmall “Double Eleven” shopping festival in 2018, a single day’s turnover reached $30.835 billion
We found that if the retailer and manufacturer cannot achieve channel cooperation and implement nonuniform pricing, as long as the return loss and the customer return cost in the retail channel are less than those in the direct channel, the retailer should provide money-back guarantee (MBG) instead of dual MBG (DMBG)
We study the impact of MBG and the more relaxed DMBG and O2O strategies in dual-channel Stackelberg competition when the manufacturer has a direct channel. e significance of this study is that the manufacturer can provide the more relaxed DMBG service or cooperate with the retailer to establish an O2O omnichannel to alleviate the pressure on the retailer to handle customer returns and ease the channel conflicts caused by opening the direct channel. ird, we show that the manufacturer’s implementation of DMBG service does not always harm his own interest
Summary
During the recent Tmall “Double Eleven” shopping festival in 2018, a single day’s turnover reached $30.835 billion. E O2O omnichannel strategy based on uniform pricing has been implemented in the electronics industry, for example, by Apple, Huawei, and Mi, which have opened online direct sales channels and retail experience stores (retail channels) to provide consumers with offline product line display and experience. We found that if the retailer and manufacturer cannot achieve channel cooperation and implement nonuniform pricing, as long as the return loss and the customer return cost in the retail channel are less than those in the direct channel, the retailer should provide MBG instead of DMBG. E significance of this study is that the manufacturer can provide the more relaxed DMBG service or cooperate with the retailer to establish an O2O omnichannel to alleviate the pressure on the retailer to handle customer returns and ease the channel conflicts caused by opening the direct channel.
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