Return of products purchased by customers is a common phenomenon in the retail industry and results in costs to retailers. In practice, most retailers implement a full-refund policy, but the terms of customer returns policies vary. A customer returns policy serves as a post-customer service, and is a determinant factor in the customer’s decision to purchase the product, in addition to other factors, such as the price of the product. In this paper, for competing retailers who face customer returns, competition from multiple retailers and uncertain customer valuations of the product, we develop a model to examine when retailers can survive and what pricing strategy they should implement in a competitive market. We identify the co-existence conditions for multiple retailers and the existence conditions of a Nash equilibrium among competing retailers. We also show the impact of customer returns on the retailers’ pricing and market share, as well as on profits in a competitive market. Numerical examples are included to illustrate the major results discussed in the paper.

This paper examines the manufacturer’s channel strategy as it considers introducing an online channel to sell its own national brand (NB) product, when the brick-and-mortar retailer sells both the NB and its own lower-quality store brand (SB) product. The manufacturer is motivated to introduce an online channel when the customers’ ‘hassle cost' of shopping online is relatively low and their transportation cost is relatively high. However, our results also demonstrate that when the online shopping hassle cost is high and the transportation cost is low, and even when there are very few sales in the online channel, the online-sales strategy can still contribute positively to the manufacturer’s profit. The introduction of the online channel by the manufacturer may result in a win-win situation for the manufacturer and the retailer. As a corollary effect, when the retailer is able to determine the SB quality, it should position the SB at a lower quality level to avoid competition with the manufacturer’s online channel.

This paper studies contract strategy for two competing supply chains selling a substitutable product under demand uncertainty. Each supply chain consists of a risk neutral manufacturer and a risk averse retailer. As Stackelberg leader in each supply chain, each manufacturer needs to decide which type of contract to provide to its retailer, either a revenue sharing contract or a wholesale price contract. We identify the conditions under which each type of contract should be offered in a competitive market, and which type of contract is preferred by manufacturers only, or by both manufacturers and retailers. We show that wholesale price contracts may be a better choice than revenue sharing contracts for the manufacturers, to mitigate fierce chain-to-chain competition. Wholesale price contracts are preferred by the manufacturers over revenue sharing contracts when the price competition is moderate and demand variation is significant. A revenue sharing contract is the dominant choice for both the manufacturers and the retailers when the price competition is weak and demand uncertainty is low, as long as a revenue sharing ratio is negotiated in a proper range, a win-win outcome for all supply chain members.