Optimal Return Policy in Direct Selling Supply Chain

Nowadays, various merchandises can be bought via Internet and mailing. Direct selling has become an important supply chain mode. Although it generates profit for manufacturers and provides convenience for customers, the difficulty of physically inspecting the product exists. Therefore, return policy is a key factor to influence a customer's purchasing decision. There is a trade-off between cost due to more returned products and benefit due to more attractive refund policy. This paper develops a profit-maximization model and discusses e-tailer's optimal pricing and return policies with respect to certain market reaction parameters in a competitive e-business scenario. Furthermore, the impact of competing degree on e-tailer's profit is illustrated with a numerical example. It is also explained that how to influence the responsive sensitivity of company's return policy in a way of using marketing and operational strategies so as-to maximizing the e-tailer's profit. Finally, several future research directions are pointed out in the paper.