461 / 2024-04-25 15:41:29

How Pricing Interacts with Return Insurance in Dual-channel Retailing

pricing,product returns,dual-channel retailing

This study explores optimal pricing in dual-channel retailing with return insurance, considering price differentiation across channels, consumer heterogeneity, and return behavior. Three return insurance strategies are examined: (i) no return insurance (Scenario N), (ii) retailer's free return insurance (Scenario R) and (iii) consumers' decision to purchase return insurance (Scenario C). Findings suggest that online prices may need to increase when offering free return insurance, potentially exceeding in-store prices to boost online sales. The impact of return insurance on pricing and demand is not monotonic; it’s not always beneficial to lower prices. When product value and return costs are high, dual-channel retailers might attract more online demand with return insurance, sometimes raising both online and offline prices for profit maximization. Strategic pricing adjustments can target specific customer segments, enhancing overall profit margins. The analysis reveals that return insurance is profitable for high-value products with significant return costs. Offering free return insurance can be as profitable as allowing consumers to purchase it. Our study highlights the role of return insurance as an important tool for dual-channel retailers when combined with strategic pricing.