Advance selling with part prepayment and consumer returns

Yanhong SUN, Tana SIQIN, Lifeng MU*

*Corresponding author for this work

Research output: Journal PublicationsJournal Article (refereed)peer-review

Abstract

Part prepayment scheme can induce more consumers to purchase the product in advance but may also lead to the increase in consumer returns. This study develops a two-period theoretical model to examine the interaction between the part prepayment scheme and the return policy and its effect on the retailer's profit. Our analysis yields the following insights. First, part prepayment scheme can help the retailer to increase the demand without sacrificing the advance selling price. Second, the prepayment proportion and the consumers' hassle cost of return have a negative cross effect on the retailer's profit, which indicates that when the consumers are allowed to preorder the product with a relatively low proportion of prepayment, the retailer should impose more restrictions to increase the consumers' hassle cost of return. Third, the prepayment proportion and the ex-ante product information perceived by consumers also have a negative cross effect on the retailer's profit, which indicates that the retailer should consider the degree of product information disclosure when adopting the part prepayment scheme. We also extend the model to incorporate the retailer's handling cost of consumer returns and find that it is beneficial for the retailer to require a full prepayment when the handling cost is relatively high.

Original languageEnglish
Article number2934698
Number of pages15
JournalMathematical Problems in Engineering
Volume2018
Early online date9 Sep 2018
DOIs
Publication statusPublished - 2018
Externally publishedYes

Bibliographical note

This research was supported by the National Natural Science Foundation of China under Grant no. 71671108, the Humanity and Social Science Youth Foundation of Ministry of Education under Grant no. 17YJC6301106, and the “Chenguang Plan” from Shanghai Municipal Education Commission in China (no. 15CG47).

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