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False failure returns: Optimal pricing and return policies in a dual-channel supply chain

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Abstract

This paper aim is to examine the optimal pricing and return policies for false failure returns in a dual-channel supply chain. Four prevailing return policies in which a manufacturer both operates an E-shop and sells its product through a brick-and-mortar retailer are analyzed, i.e. (I) the manufacturer handlings E-shop’s returns, while the retailer addresses brick-and-mortar store’s returns (NR); (II) the retailer tackles the whole (both E-shop’s and brick-and-mortar store’s) returns (ORR); (III) the manufacturer tackles the whole returns (ORM); and (IV) the manufacturer and the retailer are jointly responsible for the whole returns (RRM). Firstly, the optimal pricing and return policies comparing these four scenarios under uniform-pricing strategy are presented. Our conclusions show that the ORR is an optimal return policy. Compared with the NR, consumers will get a lower product pricing under the ORR and a higher product pricing under the ORM. With regard to the RRM, the product pricing is depended on consumer preference, return-rates of the E-shop and the brick-and-mortar store. Then, the optimal pricing and return policies are analyzed under differential-pricing strategy by conducting two-stage sequential games between the manufacturer and the retailer. The findings show that if consumers in the market prefer to purchase via the E-shop, the ORR is an optimal return policy. Otherwise, the NR is the optimal return policy. Compared with the NR, the ORR retailer’s product pricing will rely on the retailer’s and the manufacturer’s return-costs; the RRM retailer’s product pricing will depend on the return-costs of the retailer and the manufacturer, the return-rates of the E-shop and the brick-and-mortar store and so on. Finally, the influences of the manufacturer and the retailer establishing a Buy-back contract are discussed. Our results illustrated that the Buy-back contract doesn’t affect optimal pricing and return policies under both the uniform and the differential pricing strategies.

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Acknowledgements

The authors are thankful to three anonymous reviewers for their constructive and helpful comments which helped to improve the presentation of this paper considerably.

This research was supported by the National Natural Science Foundation of China (NSFC) (Project Nos. 71571151 and 71371159).

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Authors and Affiliations

  1. School of Management, Xiamen University, 361005, Fujian, China

    Guojun Ji & Shangqing Han

  2. Operations Management & Information Systems Division, Nottingham University Business School, Nottingham, UK

    Kim Hua Tan

Authors
  1. Guojun Ji
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  2. Shangqing Han
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  3. Kim Hua Tan
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Correspondence to Guojun Ji.

Additional information

Guojun Ji obtained his PhD in industrial automation from Southeast University (SEU), China, in 1998. He finished post- doctoral work at Washington State University in 1999 and served as a visiting scholar at the University of Washington in 2004. He is currently a professor in the School of Management, Xiamen University, China. His research interests include systematic engineering, supply chain management, information management and logistics engineering, and published papers are over 300, such as International Journal of Production Economics, International Journal of Production Research, International Journal of Systems Science, Journal of the Operational Research Society and others. He is also involved in collaborative research in Green Logistics management, supply chain management and service innovation.

Shangqing Han received his PhD in management science and engineering from Xiamen University, China in 2016; the master’s degree in logistics engineering from Xiamen University, China in 2013.

Kim Hua Tan is a professor in operations and innovation management. Prior to this, he was a researcher and teaching assistant at Centre for Strategy and Performance, University of Cambridge. Dr. Tan spent many years in industry, before joining academia in 1999. His current research interests are lean management, operations strategy, decision making, and supply chain risk management. Dr. Tan has published a book called ‘Winning Decisions: Translating Business Strategy into Action Plans’, and numerous articles in academic journals such as Decision Sciences, International Journal of Operations and Production Management, International Journal of Production Economics, International Journal of Innovation Management, and others.

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Ji, G., Han, S. & Tan, K.H. False failure returns: Optimal pricing and return policies in a dual-channel supply chain. J. Syst. Sci. Syst. Eng. 27, 292–321 (2018). https://doi.org/10.1007/s11518-017-5356-2

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