Omnichannel retailing return operations with consumer disappointment aversion

Abstract

Product returns is a widespread phenomenon associated with online retailing, where both consumer behavior and retailers’ operation decisions are inextricable topics. To improve the returns experience, retailers have forayed into omnichannel return operations and consumers are sophisticated enough to make strategic channel decisions.

Taking into account consumer disappointment aversion triggered by value uncertainty online, three return configurations were explored: non-return, same-channel return and omnichannel return and the impacts of disappointment aversion on the retailer's optimal pricing, return penalty, and profitability are investigated. The most important conclusion is that the effect of disappointment aversion on return strategy is influenced by distinct product return rate. We identify conditions under which the retailer should choose omnichannel return strategy and the other key findings show that the optimal pricing under a same-channel strategy should be no lower than the other two strategies, and depending on the level of unit travel cost, the optimal pricing is symmetric on different disappointment aversion intervals and the correlations are opposite. The return penalty keeps down with disappointment aversion. The retailer will implement a non-return policy only when return rate is relatively high. When both the return rate and the disappointment aversion is intermediate, the same-channel return is the optimal strategy. However, it is only profitable for retailers to implement an omnichannel return strategy when disappointment aversion is low, which supports for the retailer's choice of return strategies.