Abstract
Abstract Many retailers are adopting a dual-channel retailing strategy (DCRS) in which products are offered through two channels: physical stores and online stores. Due to regulations or competitive measures, such a strategy allows customers who find a purchase unsatisfactory to obtain a full refund through a same-channel return or a cross-channel return. No papers have collectively studied the aforementioned types of customer returns in a dual-channel context. This paper studies optimal pricing policies for a centralized and decentralized dual-channel retailer (DCR) with same- and cross-channel returns. How dual-channel pricing behavior is impacted by customer preference and rates of customer returns is discussed. It is found, through sensitivity analysis, that when a channel with significant customer preference faces a high rate of returns, decentralized channels generate a greater system profit for retailers than coordinated channels that have a unified pricing strategy. A DCR with a Stackelberg scheme has the proclivity to be more profitable when under the leadership of a channel with a high rate of returns and significant customer preference.
Highlights
This work analyzes the problem of customer returns under a dual-channel retailing system
The result for dual-channel retailer (DCR) with return is different from the previous observations on pricing strategies for DCR without returns: a higher base level of demand in a single sale channel leads to a higher selling price if customer returns are not considered (Dan, Xu and Liu 2012 and Hua, Wang and Cheng 2010)
It follows from Lemma 1 that if customer preference for the physical store is lower than the threshold, the selling price in the physical store is lower than the selling price in the online store
Summary
This work analyzes the problem of customer returns under a dual-channel retailing system. Other papers in literature have examined the situation wherein a multi-channel retailer offers the same product in both self-owned online and physical stores. Chen and Grewal (2013) studied Stackelberge and Bertrand-Nash competitions in situations wherein a new channel competes with a well-established retailer that offers a full refund policy. Chen and Zhang (2011) studied Stackelberge and Bertrand-Nash competitions between two retailers that both offered a full refund policy. Balakrishnan, Sundaresan and Zhang (2014) studied the browse and switch behavior exerted by consumers on the brick and mortar stores The effect of such a behavior on system’s profits and prices are examined when returns are allowed for online purchases only. This paper studies theoretical game competition between stores using the following frameworks: the Online-Leader Stackelberge game, the Physical-Leader Stackelberge game, and the Nash game
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