Money-Back Guarantee, Dual Money-Back Guarantee, and O2O Strategy in a Manufacturer's Dual-Channel Supply Chain

Abstract

Return services are increasingly valued by manufacturers, retailers, and customers. In many countries, an offer of money-back guarantee (MBG) is legally binding. In this paper, we discuss how a retailer and manufacturer with a direct channel should choose single or dual MBG and pricing strategies. We identify the conditions under which a retailer or manufacturer should choose a return strategy and show that the handling return loss and the customer return cost in each channel are critical factors that should be considered by the retailer and manufacturer when choosing a return strategy. In addition, the retailer should cooperate with the manufacturer to establish an offline-to-online (O2O) omnichannel to fully benefit from the convenience and advantages of the retail channel. We find that the adoption of the O2O strategy by the retailer in its retail channel always generates profits, while the manufacturer may implement the O2O strategy in its direct channel when the profit from the Internet service is higher than a threshold. Additionally, the impact of various strategies on pricing, market share, and profits is discussed.