An integrated product returns model with logistics and marketing coordination

Baris Yalabik, Nicholas C. Petruzzi, Dilip Chhajed

Research output: Contribution to journalArticlepeer-review

Abstract

We develop an integrated approach for analyzing logistics and marketing decisions within the context of designing an optimal returns system for a retailer servicing two distinct market segments. At the operational level, we show that the optimal refund price is not unique. Moreover, it is such that if both market segments return a purchased product, then neither segment will receive a full money-back refund; and it is such that if one or both segments do not return a purchased product, then a refund premium over the purchase price is possible, but the refund premium will not be enough to offset a customer's total net cost of purchase and return. We also show that any improvement to the returns system that results in increased logistical efficiency or marketing effectiveness will be accompanied by an increase in the selling price of the product. At the strategic level, we show that if the retailer does not coordinate its logistics and marketing efforts to improve the overall returns system, then it will tend to over-invest in one of the functions and under-invest in the other. Finally, we illustrate how our model can be generalized to the case in which a customer's ex post valuation of the product falls along a continuum.

Original languageEnglish (US)
Pages (from-to)162-182
Number of pages21
JournalEuropean Journal of Operational Research
Volume161
Issue number1
DOIs
StatePublished - Feb 16 2005

Keywords

  • Money-back guarantees
  • Operations/marketing interface
  • Product returns
  • Retailing

ASJC Scopus subject areas

  • Computer Science(all)
  • Modeling and Simulation
  • Management Science and Operations Research
  • Information Systems and Management

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