When should the e-tailer offer complimentary return-freight insurance ?

Zhi-Ping Fan and Zhongwei Chen

International Journal of Production Economics, 2020, vol. 230, issue C

Abstract: Consumers have recently become very concerned about the role of return-freight insurance (RI) in the e-commerce platform, where it appears prior to making the online purchase decision. In an effort to encourage consumers to buy products, some e-tailers will offer complimentary return-freight insurance (CRI), and it has become an established and recognized practice. Some e-tailers have stopped offering this resource, however, and offer consumers the opportunity to purchase RI. To examine an e-tailer's RI strategy, we consider a market consisting of a manufacturer and an e-tailer. Three alternative scenarios are investigated: 1) Scenario N where there is no RI; 2) Scenario C where consumers may purchase RI; and 3) Scenario S where the e-tailer offers CRI. We find that the introduction of RI increases the price level, and it does not necessarily benefit the manufacturer and the e-tailer. The RI premium incurred by the e-tailer and the return-freight compensation play a critical role in selecting the RI strategy. When the former is low and the latter is high, the e-tailer is willing to offer CRI. Meanwhile, the manufacturer has the incentive to bear the RI premium for the e-tailer.

Keywords: Product returns; Return-freight insurance; E-commerce; Game theory (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (15)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:proeco:v:230:y:2020:i:c:s092552732030253x

DOI: 10.1016/j.ijpe.2020.107890

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