Abstract
This paper investigates in a dual-channel supply chain which return strategy is better for the manufacturer that considers the consumers’ utility. We find that a manufacturer prefers offering a Money-Back Guarantee (MBG) as long as the net salvage value of the returned product is positive in a channel. However, the return strategy of the retailer is more affected by the return policy of another channel than the net salvage value. In order to reduce online returns, we propose the online product customization channel, and then, we examine the choice of return policy and the manufacturer’s channel selection. We show that the demand and profit of the manufacturer will increase to a certain extent when opening an online customization channel. However, compared to the case where both channels provide an MBG, the implementation of online customization may hurt the manufacturer’s profits with the increase in consumer satisfaction in indirect channels.
Highlights
Manufacturers are more willing to open a direct sales channel after a traditional sales channel already exists
We develop a dual-supply chain model to find the optimal return strategy and pricing for the manufacturer and retailer, and we introduce the implementation of personalized products in the online channel to analyze the change of return policy and pricing decisions
We show that the manufacturer should provide an Money-Back Guarantee (MBG) for any one of the channels when the net salvage value of returned products in the channel is positive, while retailers prefer to reduce competition between channels rather than opening an MBG
Summary
Manufacturers are more willing to open a direct sales channel after a traditional sales channel already exists. Customers have “touch and feel” experiences by shopping through the traditional retail channel [5], which is hard to achieve in online channels This ex-ante uncertainty brings about the conflict between commodities and customers’ preference, which often leads to the return of products. Due to the specificity of customized products, most manufacturers that offer customized services will not provide a return policy (except quality issues) It remains to be seen whether an online customization channel will bring more benefits than a regular online channel. We develop a dual-supply chain model to find the optimal return strategy and pricing for the manufacturer and retailer, and we introduce the implementation of personalized products in the online channel to analyze the change of return policy and pricing decisions.
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