The Effect of Money-Back Guarantee and Customer Value on Dual-Channel Supply Chain

Abstract

This paper investigates the effect of money-back guarantee (MBG) and customer value on dual-channel supply chain. Manufacturer could produce and sell old generation product by direct channel to compete with new generation product by retail channel. Both retailer and manufacturer could choose whether implementing the MBG strategy or not. This paper discusses whether manufacturer should open the direct channel, how to make MBG strategy to realize maximum profits, and how customer value influences the supply chain. We give the boundary conditions of four situations about the decisions of retailer and manufacturer: GG situation, GN situation, NG situation and NN situation. We find that MBG strategy by retailer brings higher retail unit price, MBG strategy by manufacturer brings higher direct unit price and influences the wholesale price by the net salvage value of new generation product. This paper shows that if the demand was positive, opening the direct channel always benefits the manufacturer. Besides, customer value affects demands of two channels and the threshold value of parameter is given in this paper.

Keywords

Money-back guarantee / customer value / dual-channel supply chain / product choice

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