Whether to adopt “buy online and return to store” strategy in a competitive market?

Abstract

This study attempts to examine whether it is beneficial to introduce the “buy online and return to store” (BORS) strategy in a competitive market. We consider two competing dual-channel retailers, and investigate conditions under which it is optimal for one or both of the retailers to offer the BORS strategy. We first assume that a partial refund is offered for online returns and then consider the important case of a full refund. We show that whether both retailers adopt this strategy significantly depends on the return rate and cross-selling profit. Specifically, if the return rate is sufficiently low (high), at least one retailer (both retailers) will adopt this strategy when the unit cross-selling profit is relatively high. Nonetheless, both retailers will fall into the prisoner's dilemma under certain conditions. Interestingly, the return rate and proportion of consumers with a high hassle cost associated with BORS returns significantly influence the equilibrium channel strategy and the existence of the prisoner's dilemma. We further find that, when both retailers implement the BORS strategy, they both benefit from offering a full refund return policy when the number of online-type consumers is large enough and the unit cross-selling profit is relatively small, but should provide a partial refund otherwise. When only one retailer adopts the BORS strategy, a partial refund return policy is preferable.