Return Policy Decision With Product Quality And Distribution Channel Structure:Based On The E-Business Environment

Recently,consumers buy products through on-line websites increasingly.An im-portant feature of on-line retailing is the spatial separation between buyers and sellers.In such situations,consumers face great uncertainty when buying products.To make up for this deficiency,firms provide the return policy to improve consumers' purchase intention.The return policy offered by the firm works well in solving the uncertainty of consumers' purchase so as to improve the demand,but also increases the potential return of products.For on-line firms,generous return policy directly leads to high return costs,including transportation,repackaging and related processing costs.Thus,how to decide the return policy is an important topic for practical managers and scholars.The return policy consists of three parts:return-handling agent(return channel),return window,and refund.The return-handling agent solves the question of who deals with the consumer return activity.In general,the retailer receives returned products from consumers,defined as the indirect return channel in this paper;but,some manu-facturers deal with returned products directly,defined as the direct return channel.The return window answers the question of how long the consumer can return the product.While the refund solves the question of how much consumers can get when they return their products.Firms would charge the restocking fee when the original package is bro-ken.Most previous literature focuses on the refund in the indirect return channel where the retailer handles the returned product.Specifically,consumers return their unwanted products to the retailer/manufacturer,while the manufacturer/retailer decides the refund to consumers.However,some practical phenomenons are often ignored:In terms of the return window,some manufacturers deal with returned products directly instead of del-egating to the retailer.On the aspects of the return window and refund,increasing firms offer the full refund to consumers but with different return windows;the decentralized distribution channel can incur a longer return window than the centralized channel,and the high-quality product can have a shorter return window compared to the low-quality product.Thus,we try to bridge the gap between the literature and practice by studying the return channel and return window decisions by considering the product quality and distribution structure under the E-business background.This paper first focuses on the return window decision and studies a firm's return window and product quality in a distribution channel.Conventional wisdom posits that the decentralized channel incurs worse services because of double marginalization,such as a shorter return window.However,we find the decentralized channel in fact can pro-vide a longer return window than the centralized channel.To solve the conflict between the practice and conventional wisdom,we build a model consisting of one manufac-turer,one retailer,and consumers who are heterogeneous in product valuations,and find that the return window can be longer in a decentralized channel than in a central-ized channel.Furthermore,we find that the return window can decrease with product quality,which means compared to low-quality products,high-quality products can be offered shorter return windows.When endogenizing the product quality,in contrast to previous literature,we show that the product quality in a decentralized channel may be higher,even when consumer heterogeneity on willingness-to-pay is vertical and follows a uniform distribution.This higher product quality induces the decentralized channel incurring a higher consumer surplus than the centralized channel.Second,we study a manufacturer's return channel choice and product quality de-cision with uncertain demand when the manufacturer collects returned products from consumers directly or via an indirect channel through a retailer.By building a model comprising of one manufacturer,one retailer,and consumers who are heterogeneous in product valuations and return hassle costs,counterintuitively,we find that the manufac-turer can be better off by choosing a direct return channel even when the direct return channel incurs a lower product salvage value and a higher consumer hassle cost than the indirect return channel.In both direct and indirect return channels,opposite to the previous literature stating that product quality decreases with demand uncertainty,our analysis shows that product quality may actually increase with demand uncertainty.Fur-thermore,we find the manufacturer can affect the relationship between product quality and demand uncertainty through its buyback price.Lastly,we develop a theoretical model in a competitive market to explore the op-timal refund and product quality to balance the demand and return cost.We consider two firms offering substitutive products to consumers,in which product qualities are assumed to be exogenous and endogenous,respectively.Interestingly,we find that the high product quality and generous return policy do not always work efficiently.Un-der certain conditions,the two measures may offset each other concerning consumers-purchasing intentions.With exogenous product quality,the firm's optimal refund is in-dependent of its competitor.In the case of one product quality is endogenous,given the rival's product quality,we state that the firm may decrease its product quality in response to competition.This finding is different from the conventional point in which the firm should adopt high-quality products to compete.When both product qualities are endogenous,it is demonstrated that with fiercer competition,one firm's optimal product quality is more sensitive to its rival's pricing than its price.