Optimal Decisions And Returns Policy In The Presence Of Reselling Returned Products And Channel Competition

In the retailing industry,firms usually manage the customer returns by offering a returns policy,such as a money-back guarantee(MBG)or a no-returns policy.Studies have shown that MBG can have many benefits,including signaling product quality,reducing customer's risks of dissatisfaction,or allowing firms to charge higher retail prices.However,offering an MBG also imposes a great cost pressure on firms.In addition to the sales loss,returns related costs(such as reverse logistics cost,handling cost,and labor cost)are also very high.Therefore,firms must balance the tradeoffs of the costs and benefits in deciding its returns policy.It is common that some firms resell returned products from customers or face channels competion.In this thesis,the impact of customer returns on firms' selling strategies selection and pricing decisions under three settings(monopoly,supply chain,and dual channel)is examined.Management insights are provided and suggestions are proposed for the firms.The main research issues and and conclusions of this thesis are outlined as follows:Chapter 3 considers the problem that a firm resells customer returns as openbox products.We develop a model to investigate a monopolistic retailer's customer returns management strategy.The retailer should determine its returns policy,an MBG or a no-refund policy.If an MBG returns policy is offered,the retailer must also decide whether or not to sell the returned products as open-box products.We derive the optimal pricing strategy for each of the returns strategies and identify the retailer's optimal customer returns management strategy.We show that only when the customer's perceived value on an open-box product is sufficiently high and the retailer's inspection cost is sufficiently low,will the retailer consider reselling returned products as open-box products.Otherwise,when reselling the returned product is costly for the retailer and less attractive to customers,the retailer will not involve in the business of selling the returned products.When the inspection cost is moderate and the customer's perceived value on an open-box product is high,the retailer resells some of the returned products as open-box products.In addition,the retailer does not change the price of new products when it salvages returned products;it increases the open-box price as the customer's perceived value on the open-box products increases.When the inspection cost is sufficiently low,the retailer sells all of the customer-returned products as open-box products.In this case,if the customer's perceived value on the open-box product increases,the retailer should reduce its price for new products while increasing the price for open-box products.Interestingly,different from existing studies in the literature,we find that even if the retailer cannot handle customer returns efficiently,as long as the inspection cost is low,the retailer may be more profitable when it offers an MBG and sells the returned products as open-box products.In this case,selling the open-box product plays the role of market segmentation,which can expand the market to customers who have low valuations.Chapter 4 considers a problem with two-period selling(a regular period and a markdown period)in the presence of customer returns.As selling products in two periods is common practice in the retailing industry,we extend the study on returns policy to a two-period supply chain setting,in which the manufacturer is a Stackelberg pricing leader and decides its pricing strategy(a commitment or a dynamic)and associated wholesale prices.The retailer(as the pricing follower)needs to decide returns policies(an MBG or a no-refund),retail prices,and order quantities over two periods,with the option to strategically stock products in the first period to carry them to the markdown period,to react to the manufacturer's wholesale price strategy.If the retailer offers an MBG in the first period,we also assume that it can sell returned products in the markdown period along with new items.We show that the retailer may carry strategic inventory only under the manufacturer's dynamic pricing strategy when the holding cost on strategic inventory is low.We find that customer returns can serve as a substitute for the inventory,and the retailer is less likely to carry strategic inventory from the first period to the second period when it offers an MBG returns policy,as compared to when it offers a no-refund policy.Although strategic inventory and potential returned products can help the retailer with inducing the manufacturer to set a lower markdown wholesale price,the manufacturer and the retailer can both be better off when a dynamic pricing strategy is selected.Different from the existing research,we find that the manufacturer does not always prevent the retailer from carrying strategic inventory by setting a higher wholesale price in Period 1.We also show that an MBG returns policy is not always a dominant returns strategy for the retailer,if it has the option to carry strategic inventory.We identify the conditions under which either a no-refund policy or an MBG over two periods can lead to a Pareto improvement for both the retailer and the manufacturer.Differing from Chapters 3 and 4,Chapter 5 examines the impact of returns policy on the decisions of the supply chain in a dual-channel with an original equipment manufacturer(OEM),a competing contract manufacturer,and a noncompeting contract manufacturer.The OEM needs to choose its outsourcing strategy,either to the competing contract manufacturer or to the non-competing contract manufacturer,in the presence of customer returns.We find that the OEM's optimal outsourcing strategy heavily depends on the efficiency of producing and selling the OEM brand relative to that of the competing contract manufacturer brand,and the ratio of the qualities of the two brands;the competing contract manufacturer always prefers to manufacture for the OEM.Interestingly,we find the when the OEM outsources to the non-competing contract manufacturer,the vertical price competition(the wholesale price vs.the retail price for the OEM product)is intensified,while it is softened if the OEM chooses to outsource to the competing contract manufacturer.In addition,the OEM may choose to outsource to the competing contract manufacturer even if the competing contract manufacturer charges a higher wholesale price than the non-competing contract manufacturer does.We also find that either the OEM or the competing contract manufacturer should offer an MBG if it can recover the value of a returned product efficiently.We further show that when the OEM chooses to outsource to a non-competing contract manufacturer,MBGs offered by the OEM and the competing contract manufacturer can benefit at least one firm or even produce a win-win situation.When the OEM chooses to outsource to the competing contract manufacturer,both the OEM and the competing contract manufacturer can be either better off(Pareto improvement)or worse off(prisoner's dilemma).These results are different from existing studies in the literature.