Bricks and Clicks: Decisions in an O2O Supply Chain Considering Product Returns

• Main Authors: Wei Feng, Hong Chen
• Format: Article
• Language: English
• Published: IEEE 2019-01-01
• Series: IEEE Access
• Subjects: Channel distribution; product returns; pricing decision; Internet marketing; O2O supply chain
• Online Access: https://ieeexplore.ieee.org/document/8930506/

Decision making by participants in supply chains is fundamentally constrained in online and offline (O2O) supply chain management. Enterprises ultimately seek selling strategies that can increase their sustainability in highly competitive marketplaces. In making purchase decisions, customers like to “touch and feel” products, and providing this experience to customers must be considered when calculating the costs for retailers of customers returning products. Therefore, in this study, we discuss the influence of selling strategies and the retailer cost of handling returns according to different distribution channels. The O2O supply chain decision models under a duopoly and monopoly are constructed to obtain the wholesale price and selling price, as well as the maximum profits of game players. One important result is that when the retailer's cost of handling returns is within a certain range, the profits of the supplier and O2O supply chain in the duopoly context (Model D) are higher than those in the monopoly context (Model O). However, regardless of the retailer cost of handling returns, an e-retailer's profits are always higher than the sum of the two retailers' profits. For consumer surplus, when the retailer's cost of handling returns meets certain conditions, the consumer surplus is lower in the monopoly context (Model O) than in the duopoly context (Model D) and creates more utility for consumers in a duopolistic market. The research is beneficial for companies seeking to establish sound pricing and sales strategies in the emerging field of O2O commerce, enhancing companies' long-term economic performance.