Optimal Return Policy And The Value Of Freight Insurance For A Retailer Under Different Return Freight Bearers

Return policy is a double-edged sword for retailers.On the one hand,returns policies can help increase the purchase intention of consumers,stimulate demand and expand the market share.On the other hand,consumers return may occur additional costs to the retailer and opportunistic consumers may abuse the returns policies.For online retailers,product returns will incur a freight cost since retailers and consumers are far from each other.The freight cost may have a negative effect on the returns policy and an impact on consumers' purchase behaviors.To circumvent such a negative effect,many retailers buy freight insurance for their consumers.If the retailer provides freight insurance for consumers,on the one hand,it can decrease the negative impact of return freight,on the other hand,it may also bring a certain cost to the retailer.Based on the above background,we study the optimal pricing and returns policy,and the value of freight insurance for a retailer under different return freight bearers.For the case with no return freight cost,we find that the optimal sale price and refund depend on the heterogeneity of consumers and the proportion of high-value consumers.When consumer heterogeneity is relatively high and the proportion of high-value consumers is very high,the retailer should not adopt the returns policy,otherwise,the retailer should adopt it.For the case with a positive return freight cost,the retailer has to set a higher refund or a lower price,which will cause its profit decreases.When consumer heterogeneity is relatively high and the proportion of high-value consumers is very high,the optimal price is unchanged but the optimal refund increases.In other situations,the retailer needs to reduce the price or increase the refund to attract consumers.Further considering the case where the retailer provides return freight insurance for the consumers,we find that whether freight insurance benefits the retailer depends on the unit insurance premium and return freight cost.