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.
Bibliographical noteFunding Information:
We wish to express our sincerest thanks to the editors and anonymous referees for their constructive comments and suggestions on the earlier versions of the paper. We also gratefully acknowledge the support of grants from the Fundamental Research Funds for the Central Universities (No. NKZXZD1103 ) and the MOE Project of Key Research Institute of Humanities and Social Sciences at Universities ( 12JJD630004 ).
- Online selling
- Pricing decision
- Product quality
- Product returns
- Supply chain management