Pricing for different return policies in an online marketplace considering appeasement during a post-return out-of-stock

Abstract

No one can cast a shadow on the fact that returning a product is an integral part of any online retailing business. Thus, a well-designed return policy plays a pivotal role. This paper suggests a new formulation for the utility function applying to return policies enjoying product exchange scenarios. To use this proposed model, we extract four scenarios from some policies like time lenient return policy; monetary lenient return policy; exchange; and appeasement, which is paid during an out-of-stock that may occur when the customer returns the product. We consider a ratio that measures the effect of returning time duration on customer satisfaction to demonstrate the importance of the time leniency policy. Besides, we implement three notations to calculate the value of appeasement (financial compensation), taking place when an Out-Of-Stock happens in the process of returning the product. Models were formulated for an online retailing platform, including a retailer; an online marketplace; and a customer. After solving all mathematical models, formulated as a two-staged game theory, we extract that the profit of the online marketplace is twice more than the retailer in all scenarios, regardless of the value of the parameters. In addition, as we have considered the partial money-back guarantee in the fourth scenario, the results show that the value of the partial money-back guarantee has no impact on the profit of both the retailer and the marketplace since the price neutralizes this impact. Moreover, we have found out that the profit value of the retailer when he faces out-of-stock and chooses to pay financial compensation to the customer is so tight compared to the scenario in which he decides to supply the product. We illustrate the figures and depict that there are parameters that can make a difference rather than the scenario only.