The Impact Of Return-freight Insurance Pricing And Insure Mode On The Retailers’ Sales Decision

Based on deep developing and broad market,the e-commerce market in China becomes to the global leader,but the market exposes some detail problems.Because the remote shopping mode,the uncertainty of e-commerce makes consumers upset,and adds the burden to online retailers,which affects e-commerce development.E-commerce researchers and practitioners have been looking for the method to resistance the uncertainty in remote shopping mode.Product return can be used to resist online commodity negative impact brought by the uncertainty,in turn,stimulates the purchase demand of consumers.However,product return also bring more cost to retailers such as secondary packaging,repeated transportation,even the return cost of consumers,which makes retailers still resist product return.To solve the problem,the Chinese e-commerce platform Alibaba group joint an insurance company to develop a new type insurance called return-freight insurance in 2011.On the one hand,consumers can purchase online product with less worry about uncertainty,on the other hand,online retailers do not waste the time and effort on arguing with consumers who should burden the return cost any more.However,the new return policy also brought several problems as follows:First,as the insurance company develop the return-freight insurance to resolve the dispute between the seller and the buyer,how to ensure the insurance company’s own profit?Based on the uncertainty in e-commerce,how to design the return-freight insurance premium and compensation?In order to solve this problem,based on the traditional return model,this study combines online product reviews with insurance demand and return’s quantity,then build return-freight insurance profit function based on the product uncertainty.It gives return-freight insurance optimal premium and compensation,and relationship between insurance pricing and the uncertainty in online product reviews.Interestingly,when the sensitivity of consumers to online product uncertainty is moderate,as the uncertainty increases,the insurance premium and compensation change into opposite directions.Second,the emergence of new insurance,online retailers can also insure to protect and give consumers for free in order to enhance consumer confidence in products.Can this strategy act as a signal to convey the quality of online retailer’s message?If it works,when and how does it work?Take homogeneous consumers as example,this study to solve a separating equilibrium,which can deliver product quality information that high quality retailers to give consuemrs return freight insurance free,while low quality retailer will not imitate high quality retailer’s strategies.Then,based on the return-freight insurance constraints,we give the endogenous relationship between double quality signals.Study shows that the compensation does not need to be equal with consumer’s real return fee,just make sure it is big enough,can the quality of signal transmission;while return-freight insurance profit need to be moderate.Third,when consumers know online product fit uncertainty,how the two return policy affect competitive relationship between the two retailers?What will happen to the price and demand of online products?Take two online retailers both adopt money-back gurantee as a benchmark,this study analyzed two online retailer can offer consumers complimentary return-freight insurance or money-back guarantee as four cases of equilibrium.Compared with the benchmark case respectively,under different cases the two kinds of online products prices change,sales trends,and profits changes are calculated.The research results show that in competition mode,when the risk neutral consumer knows the product return rates,either online retailer to give consumers return freight insurance free is not wise.Fourth,because e-commerce platform offer complimentary return-freight insurance to consumers as a membership benefit.How does it affect the relationship between online retailers?What will happen to the e-commerce platform profit?In addition,how to set the commission ratio?Take the case that one online retialer offer consumers return-freight insurance,the other retailer use money-back guarantee as a benchmark,solve the equilibrium condition of e-commerce platform give or not return-freight insurance to consumer as a membership benefit.Product prices and sales trend are analysis,at the same time we get the two retailers and e-commerce platform profits.The research results show that although the e-commerce platform gives consumers return-freight insurance intensifies the competition between two online retailers,as long as the commission ratio is appropriate,even if the ratio no longer changes,still can two online retailers and e-commerce platform make profit.This research work based on the return-freight insurance operation.All participants profits in e-commerce are analyzed in theoretical.We show the guidance to the consumers,insurance company,online retailers and e-commerce platform on decision-making in both theory and practice.