False failure returns: Optimal pricing and return policies in a dual-channel supply chain

Abstract

This paper aim is to examine the optimal pricing and return policies for false failure returns in a dual-channel supply chain. Four prevailing return policies in which a manufacturer both operates an E-shop and sells its product through a brick-and-mortar retailer are analyzed, i.e. (I) the manufacturer handlings E-shop’s returns, while the retailer addresses brick-and-mortar store’s returns (NR); (II) the retailer tackles the whole (both E-shop’s and brick-and-mortar store’s) returns (ORR); (III) the manufacturer tackles the whole returns (ORM); and (IV) the manufacturer and the retailer are jointly responsible for the whole returns (RRM). Firstly, the optimal pricing and return policies comparing these four scenarios under uniform-pricing strategy are presented. Our conclusions show that the ORR is an optimal return policy. Compared with the NR, consumers will get a lower product pricing under the ORR and a higher product pricing under the ORM. With regard to the RRM, the product pricing is depended on consumer preference, return-rates of the E-shop and the brick-and-mortar store. Then, the optimal pricing and return policies are analyzed under differential-pricing strategy by conducting two-stage sequential games between the manufacturer and the retailer. The findings show that if consumers in the market prefer to purchase via the E-shop, the ORR is an optimal return policy. Otherwise, the NR is the optimal return policy. Compared with the NR, the ORR retailer’s product pricing will rely on the retailer’s and the manufacturer’s return-costs; the RRM retailer’s product pricing will depend on the return-costs of the retailer and the manufacturer, the return-rates of the E-shop and the brick-and-mortar store and so on. Finally, the influences of the manufacturer and the retailer establishing a Buy-back contract are discussed. Our results illustrated that the Buy-back contract doesn’t affect optimal pricing and return policies under both the uniform and the differential pricing strategies.

Keywords

Dual-channel / optimal return policy / optimal pricing / false failure returns / game theory

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