Multi-product Sales Model Selection And Pricing Strategy Considering Returns

Over the past two decades,China’s e-commerce industry has experienced rapid growth,with the overall size of the online shopping market surpassing 13 trillion yuan.As the number of products sold online continues to increase,so does the amount of returns.Due to the uncertainty of consumer valuation in online shopping and the lenient return policies,full refunds have gradually become the market norm.To avoid disputes arising from returns,many online retailers have introduced insurance companies to provide quality assurance for their products.In addition,facing the increasingly fierce competition in the online market,retailers have also adopted different promotion strategies to further stimulate consumption.The most common sales models are bundling and add-on sales.However,considering the differences in consumer returns between these two sales models,there is currently no clear advantage of either one.Therefore,it is crucial for retailers to choose the right sales model for their profit growth,as a reasonable sales model is beneficial to their profit growth,while a wrong sales model can hurt their profit.To address this issue,this paper proposes a dynamic game model consisting of online retailers,insurance companies,and consumer groups in the context of product returns.The bundling and add-on sales models are modeled and solved separately according to their differences in return policies.Based on this,the equilibrium results of different sales models are compared and analyzed,and the influence of consumer return trouble costs and the proportion of add-on products on the equilibrium product price,retailer’s profit,and insurance company’s profit are explored.Furthermore,the negative effects of bundling sales and the heterogeneity of consumer add-on behavior are also discussed.The research findings indicate that:Firstly,the add-on product substandard rate has a significant impact on retailers’choice of sales models.Specifically,bundling sales are a better choice when the addon product substandard rate is lower.However,when the add-on product substandard rate is higher and the core product price is higher while the discount is lower,retailers should choose add-on sales.Secondly,in the bundling sales model,retailers’ equilibrium profit increases with the increase of the consumer return hassle cost,while insurance companies’ equilibrium profit decreases with the increase of the consumer return hassle cost.However,in the add-on sales model,insurance companies’ equilibrium profit may increase with the increase of the consumer return hassle cost.This also provides a new approach for large commercial groups to provide self-insurance services:compared with bundling sales,add-on sales are a better choice.Thirdly,when retailers choose bundling sales,an increase in the proportion of addon products will lead to an increase in the profit of both retailers and insurance companies,achieving a "win-win" situation.Conversely,a high proportion of add-on products in the add-on sales model will to some extent harm retailers’ profits.Finally,this paper summarizes the main results and conclusions of the research,points out the limitations and shortcomings of the study,and looks forward to future research directions.