Examining relationships between the return policy, product quality, and pricing strategy in online direct selling

Yongjian Li, Lei Xu, Dahui Li

Research output: Contribution to journalArticlepeer-review

104 Scopus citations

Abstract

In online direct selling, a customer will not experience the product when making the purchase decision. Concerns about product quality and the return policy may prevent the customer from buying the product. In this paper, we develop several theoretical models to examine the impact of online distributor's return policy, product quality and pricing strategy on the customer's purchase and the return decisions. We categorize customers based on their purchase and return behaviors and discriminate distributors based on whether they position their strategy as cost- or price-driven. We find that decisions about the return policy are mutual and complementary with product quality and pricing strategies. In addition, we study direct distributor's pricing strategy, the return policy and the quality policy in four scenarios. The scenarios include situations where customer's demand is sensitive to price or the return policy, as well as where return is sensitive to the return policy or quality. Further, a special case with full refund is analyzed. Finally, we provide a numerical example to simulate the effects of demand sensitivity and return sensitivity on distributor's decisions and profits.

Original languageEnglish (US)
Pages (from-to)451-460
Number of pages10
JournalInternational Journal of Production Economics
Volume144
Issue number2
DOIs
StatePublished - Aug 1 2013
Externally publishedYes

Keywords

  • Online selling
  • Pricing decision
  • Product quality
  • Product returns
  • Supply chain management

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