Pricing Strategies In A Dual-channel With Online Mismatched Business

With the growth of the global economy and the prevailing popularity of the Internet, electronic commerce is booming at an unprecedented speed. Thousands of suppliers sell products directly online while continuing to sell through the traditional retailers. A dual-channel distribution with the combination of a traditional channel and a direct online channel will become a developing tendency. The presence of online direct channel results in fiercer competition for the retailers, that’s because the manufacturer both becomes the supplier and the competitor of the retailer. Because the information transferred through the internet is heterogeneous, a mass of mismatched businesses emerge in the direct online channel. Online mismatched businesses mean that the customers are not satisfied with the products, with the reasons that they do not like the products as much as anticipated, do not understand how to use it, or some other reasons besides quality defective. To attract customers, the manufacturer always offers "False Failure Return Policy", which means the customers could return the products even if they have no defects on function and quality. The return policies offered in the direct online channel not only affect the manufacturer, but also have spillover effects on the retailer.To solve these problems, in this paper, we consider a mixed channel consisting of a manufacturer and a retailer, and the manufacturer provides a return policy in the online channel. Firstly, we assume the customers return the products immediately when they receive them, develop a profit maximization model under the manufacturer Stackelberg framework and obtain the optimal price and return policy. Secondly, we assume the customers would return the products within a certain period?, and the manufacturer provides a time-limited return policy. At last, we analyze the impacts of the return policy on the pricing strategies, the demand and profits of the dual-channel members under the different return policies:partial refund(TPR), full refund(TFR) and no refund(NR) with a long return time-limit and a short return time-limit. Based on the research, we find:(1) To the manufacturer, with the increase of the return price and time-limit, the manufacturer would set a higher direct online price to recover return losses. When the manufacturer offers TFR policy with a longer return time-limit, it will set the highest direct online price.When the return rate is low, providing TFR policy with a long return time-limit, the manufacturer can make the highest profit. But when the return rate is high, providing NR policy, the manufacturer can make the highest profit. The reason is that the direct online price set by the manufacturer with a high return rate and a generous return policy is very high, the consumers lost by the higher product price are much more than those intrigued by the generous return policy. So a constrictive return policy is more attractive when the return rate is high. As the return rate increases, providing a constrictive return policy is more helpful to the manufacturer.(2) To the retailer, with the increase of the return price and time-limit, the retailer would set a lower retail price to compete with the direct online channel. As opposed to the manufacturer, when the return rate is low, providing NR policy in the direct online channel, the retailer can make the highest profit. But when the return rate is high, providing TFR policy with a long return time-limit in the direct online channel, the retailer can make the highest profit.(3) To the customers, when the return rate is low, the direct online channel is more attractive if the manufacturer provides TFR and TPR policies. But when the return rate is high, the direct online channel is more attractive if the manufacturer provides NR policy. That’s because when the return rate is high, the direct online price increases the fastest. The consumers trend to reduce the product price at the expense of a constrictive return policy.The traditional retail channel has the opposite conclusion. When the return rate is low, the traditional channel is more attractive if the manufacturer provides NR policy. And when the return rate is high, the traditional retail channel is more attractive if the manufacturer provides TFR policy with a long return time-limit. That’s because the direct online price is higher with a more generous return policy with a high return rate.(4) With the increase of the return rate, to recover the return losses, the manufacturer would set a higher direct online price.