The impact of customer returns and bidirectional option contract on refund price and order decisions. (English) Zbl 1430.90039
Summary: This study investigates the impacts of customer returns and a bidirectional option contract on a newsvendor firm’s refund price and order decisions. The stochastic demand is refund price-sensitive. We show that the optimal refund price increases with the option price and decreases with both the wholesale and exercise prices, while the optimal order quantity increases with the exercise price, but decreases with both the wholesale and option prices. Furthermore, we illustrate that in the presence of customer returns, the optimal refund price and order quantity decrease; the firm should cut the refund price and order more products if a bidirectional option contract is available. We identify the conditions under which a firm should offer a full, partial, or no refund policy. We also show that a bidirectional option contract can reduce the negative impact of customer returns and enhance the firm’s profit, especially under high demand uncertainty.
MSC:
| 90B05 | Inventory, storage, reservoirs |
| 90B06 | Transportation, logistics and supply chain management |
| 90B50 | Management decision making, including multiple objectives |
Keywords:
OR in marketing; refund; newsvendor problem; customer returns; bidirectional option contractsReferences:
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