Managing Advertising and Promotion for Long-Run Profitability
Marketing Science
Closed-Loop Supply Chain Models with Product Remanufacturing
Management Science
Manufacturer Benefits from Information Integration with Retail Customers
Management Science
Measuring and Mitigating the Costs of Stockouts
Management Science
Manufacturing & Service Operations Management
Manufacturing & Service Operations Management
Consumer Returns Policies and Supply Chain Performance
Manufacturing & Service Operations Management
Optimal Reverse Channel Structure for Consumer Product Returns
Marketing Science
Editorial---People of Marketing Science
Marketing Science
| Hi-index | 0.00 |
When a firm allows the return of previously purchased merchandise, it provides customers with an option that has measurable value. Whereas the option to return merchandise leads to an increase in gross revenue, it also creates additional costs. Selecting an optimal return policy requires balancing both demand and cost implications. In this paper, we develop a structural model of a consumer's decision to purchase and return an item that nests extant choice models as a special case. The model enables a firm to both measure the value to consumers of the return option and balance the costs and benefits of different return policies. We apply the model to a sample of data provided by a mail-order catalog company. We find considerable variation in the value of returns across customers and categories. When the option value is large, there are large increases in demand. For example, the option to return women's footwear is worth an average of more than $15 per purchase to customers and increases average purchase rates by more than 50%. We illustrate how the model can be used by a retailer to optimize his return policies across categories and customers.