The Impact of Emerging Trends and Increased Supply Chain Costs on Retail Goods Returns: An Analytical Model for Optimizing Pricing and Refund Strategies

Abstract

The impact of emerging operations and marketing management trends on retail goods returns is significant. While customers are experiencing increasingly lenient return and purchase procedures, retailers face more difficult and expensive processes. The main objective of this paper is to examine the effects of new trends and the COVID-19 pandemic on supply chain expenses, customer behavior, and the pricing and refund strategies of retailers in managing product returns. This study also considers the significant economic consequences of product returns. To achieve this goal, an inclusive analytical model is developed that considers the endowment effect, customer heterogeneity, return leniency, and other widely investigated factors in the literature. The analytical framework and a series of numerical simulations with a wide range of parameter values that reflect practical situations are used to demonstrate the effects of increased supply chain costs on customer purchase and return behavior and the best pricing and refund strategies for retailers. The sensitivity analysis shows that higher supply chain costs may reduce market demand while increasing the optimum price and level of reimbursement. However, the frequency of returns may fluctuate up or down. The results also highlight the significance of the endowment effect in addressing the issue which reduces market demand while raising the optimum price and degree of reimbursement; return frequency, however, may fluctuate up or down. The results further show the importance of the endowment effect in resolving the problem.