Date of this Version
Manufacturing & Service Operations Management
This paper develops a model of consumer returns policies. In our model, consumers face valuation uncertainty and realize their valuations only after purchase. There is also aggregate demand uncertainty, captured using the conventional newsvendor model. In this environment, consumers decide whether to purchase and then whether to return the product, whereas the seller sets the price, quantity, and refund amount.
Using our model, we study the impact of full returns policies (e.g., using 100% money-back guarantees) and partial returns policies (e.g., when restocking fees are charged) on supply chain performance. Next, we demonstrate that consumer returns policies may distort incentives under common supply contracts (such as manufacturer buy-backs), and we propose strategies to coordinate the supply chain in the presence of consumer returns. Finally, we explore several extensions and demonstrate the robustness of our findings.
consumer returns, supply chains, valuation uncertainty, newsvendor model, supply contracts
Su, X. (2009). Consumer Returns Policies and Supply Chain Performance. Manufacturing & Service Operations Management, 11 (4), 595-612. http://dx.doi.org/10.1287/msom.1080.0240
Date Posted: 27 November 2017
This document has been peer reviewed.