The Optimal Dual Channel Strategy Based on Consumer Returns

We develop a dynamic game model of a supply chain in which the manufacturer sells products both through direct and retail channels when there exists consumer returns. We investigate and analyze the effects of consumer returns on the equilibrium outcomes and channel strategy of supply chain members. It reveals that there does not always exist Pareto range about customer acceptance of direct channel that both the manufacturer and the retailer can be better from dual channel mode, because of consumer returns, if consumer visiting cost is zero; otherwise, under certain conditions, there exists dual channel mode with positive direct channel demand and the optimal wholesale price under dual channel mode is larger than that under single retail channel mode, and the manufacturer can be still better from charging high wholesale price, but the retailer is worse on the opposite.