Pricing and Return Strategy: Whether to Adopt a Cross-Channel Return Option?

Abstract

Dual-channel retailers are increasingly adopting a typical cross-channel return option (CC) to allow online consumers to return their unsatisfied items at physical stores. It is important for retailers to determine whether to introduce this option in addition to the same-channel return option (SC) that requires online purchases to be returned online. To address such challenging issue, we consider a dual-channel retailer and develop theoretical models to derive the optimal return strategy and pricing decisions. To this end, two scenarios, i.e., the SC and CC scenarios, are considered. In the latter scenario, the SC is also allowed. We show that the retailer cannot always benefit from adopting the CC. Specifically, given that consumer online purchase hassle cost is sufficiently low, when the cross-selling profit is sufficiently high, the retailer is better off adopting this option, and vice versa. Adopting this option cannot always help increase the demand, but always increases the return quantity. We also find that the retailer is not always better off adopting a uniform or differential pricing scheme. Interestingly, the retailer benefits from offering a relatively low return service charge, especially when adopting the CC. Our numerical results further show that, the retailer benefits from adopting the CC when the return rate is relatively low or moderate, and vice versa.