TY - JOUR
T1 - Return shipping insurance
T2 - Free versus for-a-fee?
AU - Li, Yiming
AU - Li, Gang
AU - Tayi, Giri Kumar
AU - Cheng, T. C.E.
N1 - Funding Information:
We thank the Editor and anonymous referees for their helpful comments on an earlier version of our paper. This research was supported in part by the Natural Science Foundation of China [grant numbers 71832011, 71571140, 71701025], and the Science and Technology Innovation Team Plan of Shaanxi Province [grant number 2020TD-006]. The work of Yiming Li was also supported in part by The Hong Kong Polytechnic University under an attachment programme to undertake this research during a visit to the university. Cheng was also supported in part by The Hong Kong Polytechnic University under the Fung Yiu King - Wing Hang Bank Endowed Professorship in Business Administration.
Publisher Copyright:
© 2021 Elsevier B.V.
PY - 2021/5
Y1 - 2021/5
N2 - Return shipping insurance (RSI) has been widely adopted by retailers on major online platforms such as Taobao.com and JD.com to compensate online consumers for their return shipping fee. There are two types of RSI, namely free RSI (f-RSI), under which the retailer covers the RSI premium, and for-a-fee RSI (faf-RSI), under which consumers pay the premium. We study the optimal f-RSI and faf-RSI strategies for a monopolistic online retailer as well as the impact RSI on the retailer's returns policy. First, we find that RSI is complementary to the partial-refund returns policy as it further increases the retailer's profit. Specifically, the retailer adopts the RSI strategy if and only if the RSI premium is relatively small; in addition, the RSI strategy is more appealing with a higher RSI compensation and product salvage value, and a smaller return shipping cost. Second, we find that under the f-RSI strategy, the retailer does not change its refund price, i.e., the refund amount equals the product salvage value; while, under the faf-RSI strategy, the retailer changes its refund price strategically according to the RSI premium, compensation, and number of RSI-sensitive consumers. Third, we find that the f-RSI strategy dominates the faf-RSI strategy from the profit and social welfare perspectives; whereas, the faf-RSI may lead to a “win-win” situation for the retailer and consumers.
AB - Return shipping insurance (RSI) has been widely adopted by retailers on major online platforms such as Taobao.com and JD.com to compensate online consumers for their return shipping fee. There are two types of RSI, namely free RSI (f-RSI), under which the retailer covers the RSI premium, and for-a-fee RSI (faf-RSI), under which consumers pay the premium. We study the optimal f-RSI and faf-RSI strategies for a monopolistic online retailer as well as the impact RSI on the retailer's returns policy. First, we find that RSI is complementary to the partial-refund returns policy as it further increases the retailer's profit. Specifically, the retailer adopts the RSI strategy if and only if the RSI premium is relatively small; in addition, the RSI strategy is more appealing with a higher RSI compensation and product salvage value, and a smaller return shipping cost. Second, we find that under the f-RSI strategy, the retailer does not change its refund price, i.e., the refund amount equals the product salvage value; while, under the faf-RSI strategy, the retailer changes its refund price strategically according to the RSI premium, compensation, and number of RSI-sensitive consumers. Third, we find that the f-RSI strategy dominates the faf-RSI strategy from the profit and social welfare perspectives; whereas, the faf-RSI may lead to a “win-win” situation for the retailer and consumers.
KW - Free or for-a-fee
KW - Game theory
KW - Online retailing
KW - Return policy
KW - Return shipping insurance
UR - http://www.scopus.com/inward/record.url?scp=85103658905&partnerID=8YFLogxK
U2 - 10.1016/j.ijpe.2021.108110
DO - 10.1016/j.ijpe.2021.108110
M3 - Journal article
AN - SCOPUS:85103658905
SN - 0925-5273
VL - 235
JO - International Journal of Production Economics
JF - International Journal of Production Economics
M1 - 108110
ER -