Pricing policies for a dual-channel retailer with cross-channel returns

Abstract

Many retailers are adopting a dual-channel retailing strategy (DCRS) in which products are offered through two channels: physical stores and online stores. Due to regulations or competitive measures, such a strategy allows customers who find a purchase unsatisfactory to obtain a full refund through a same-channel return or a cross-channel return. No papers have collectively studied the aforementioned types of customer returns in a dual-channel context. This paper studies optimal pricing policies for a centralized and decentralized dual-channel retailer (DCR) with same- and cross-channel returns. How dual-channel pricing behavior is impacted by customer preference and rates of customer returns is discussed. It is found, through sensitivity analysis, that when a channel with significant customer preference faces a high rate of returns, decentralized channels generate a greater system profit for retailers than coordinated channels that have a unified pricing strategy. A DCR with a Stackelberg scheme has the proclivity to be more profitable when under the leadership of a channel with a high rate of returns and significant customer preference.