Joint Decision on Pricing and Ordering for Omnichannel BOPS Retailers: Considering Online Returns

Abstract

Uncertainty in demand and high online return rates tend to generate a large inventory backlog after a hot selling season. Some well-known companies such as Burberry and H&M choose to burn these backlogs, which is very unfavorable to the sustainable development of enterprises and society. The omnichannel BOPS (Buy Online and Pickup in Store) provides consumers with a new and convenient choice of purchasing channels. Considering the probability of online return, we build expected profit models for retailers before and after opening a BOPS channel based on consumer surplus and purchase ratio via an online channel, store channel, and BOPS channel. Then, we prove the existence of optimal solutions and obtain the joint optimization decision on pricing and ordering. The results show that, under certain conditions, when the proportion of online channel buyers increases, the retailers’ optimal decision before opening a BOPS channel is to reduce the price and increase the order quantity, and the retailers’ optimal decision after opening a BOPS channel is to simultaneously reduce the price and the order quantity. Whether or not a BOPS channel is opened, when the purchase proportion of store channel increases, the optimal decision of retailers is to increase the price and order quantity at the same time. Furthermore, when the online return rate, the cost of online shopping, the inconvenient cost of the store channel, and the inconvenience of the BOPS channel relative to store channel increase, the optimal decision of retailers is to simultaneously reduce the price and order quantity. Moreover, when the maximum psychological value of the product increases, the optimal decision is to reduce the order quantity while increasing the price. In addition, the opening of a BOPS channel increases optimal price, optimal order quantity, and maximum expected profit.