OPERATIONAL AND ECONOMICAL PERSPECTIVES OF CONSUMER RETURNS

Customer returns policies are one of common after sale services offered by a retailer in order to boost sales, improve customer satisfaction and diminish customer fit uncertainty. With such a service, the retailer accepts the return of a product after the sale has occurred, if it does not satisfy the customer’s expectations. This study investigates consumer returns from three different perspectives. First, we start with a single period inventory planning problem of multi-variants in which customers have a right to return products in case of dissatisfaction. We assume that returns can be as-good-as-new condition after a minor process and they are resalable in the same selling period. At the time of purchasing, a customer may choose to substitute her choice with another variant, if the former is sold out. This, so called substitution, and resalable returns are important parameters in assortment planning that might affect the total profit dramatically. Under this setting, we aim to illustrate the effect of return and substitution on the optimal order quantities of variants and the total expected profit.

Second, we analyze a retailer’s return policy problem when the market consists of loss-averse customers who are more sensitive to losses than gains instead of having a market of risk-neutral customers. We examine the situation in which a seller makes price and quantity decisions for a single item and also designs an appropriate returns policy in order to maximize his profit. We analyze the case where the seller offers either full-refund or partial-refund for returns if he decides to accept returns or chooses not to accept any. With the full-refund policy, the seller reimburses the consumer the full price of the product if it does not fit the customer’s preferences. With a partial-refund policy, the seller offers a refund which is strictly less than the purchase price. We assume that customers are strategic customers aiming to maximize their utilities of the product. With this model, we aim to analyze the impact of loss aversion on the seller’s price and order quantity decisions.

Finally, we presents a model that investigates the effects of return policies on each of the two sellers’ pricing decisions when these sellers engage in market size competition.Our model simultaneously addresses a consumer’s purchase decision and the competitive sellers’ price decisions, along with their respective return policies. We assume that two competitive sellers which do not have a capacity problem only decide their prices and return policies. The sellers may offer no-refund, full-refund which is the price of the product or partial-refund. The market share of each part depends on its and the rival’s price and return policy; customer valuations of the product and the degree of competition between the sellers. Before purchasing, a consumer cannot evaluate the product’s utility which is a decreasing function of the price of the firm from which she chooses to purchase the product and the disutility which is a physical distance between the consumer and a seller’s location. The return policy of a seller also affects a consumer’s decision via her expected utility. Thus, pricing and return policy decisions play an important role in the division of the total market.

Dissertation Committee: Dissertation Chair: Wenjing Shen, Ph.D. Decision Sciences Committee Member: Avijit Banerjee, Ph.D. Decision Sciences Committee Member: Seung-Lae Kim, Ph.D. Decision Sciences Committee Member: Benjamin Lev, Ph.D. Decision Sciences Committee Member: Konstantinos Serfes, Ph.D. Economics