Choice and Influence of Return Policy and Remanufacture in a Dual-Channel Supply Chain

Abstract

To investigate the choice of return strategy and its impact on a dual-channel supply chain, a game model is constructed to analyze the equilibrium outcomes of five scenarios: no returns allowed, refunds without returns, returns allowed but no return shipping insurance, returns allowed and return shipping insurance purchased by the manufacturer, and returns allowed and return shipping insurance purchased by the consumer. The study found that manufacturers offering refund policies generate more sales in the direct online channel, while retailers choose to reduce the retail price of their products. It is important to note that price reductions by retailers have a very limited effect and do not lead to an increase in sales in the retail channel. Manufacturers offering refund policies will inevitably infringe on retailers’ profits, and the variability of manufacturers’ profits depends on the residual value of returned products. Manufacturers should decide whether to offer a refund policy in online direct sales channels based on the residual value of the returned product; otherwise, the action would be detrimental to themselves. The price of direct online sales is the same whether the manufacturer buys the return shipping insurance or the consumer buys the return shipping insurance, but when the return shipping insurance is bought by the consumer, sales are higher in the direct online channel and lower in the retail channel. When the return shipping cost reimbursement received after purchasing return shipping insurance is low, it should be purchased by the manufacturer, and when the return shipping cost reimbursement received after purchasing return shipping insurance is high, it will be better for the consumer to purchase return shipping insurance.