Abstract

"An Integrated Product Returns Model With Logistics and Marketing Coordination"

Baris Yalabik, Nicholas C. Petruzzi, and Dilip Chhajed

First Author :

Baris Yalabik
Business Administration
University of Illinois at Urbana-Champaign
1206 S. Sixth Street, M/C 706
Champaign, IL 61820
USA

yalabik@uiuc.edu

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Second Author :

Nicholas C. Petruzzi
Business Administration
University of Illinois at Urbana-Champaign
1206 S. Sixth Street, M/C 706
Champaign, IL 61820
USA

petruzzi@uiuc.edu

http://www.business.uiuc.edu/faculty/petruzzi.html

Third Author :

Dilip Chhajed
Business Administration
University of Illinois at Urbana-Champaign
1206 S. Sixth Street, M/C 706
Champaign, IL 61820
USA

chhajed@uiuc.edu

http://www.business.uiuc.edu/faculty/chhajed.html

Abstract :

We develop an integrated approach for analyzing logistics and marketing decisions within the context of designing an optimal returns system for a retailer servicing two distinct market segments. At the operational level, we show that the optimal refund price is not unique. Moreover, it is such that if both market segments return a purchased product, then neither segment will receive a full money-back refund; and it is such that if one or both segments do not return a purchased product, then a refund premium over the purchase price is possible, but the refund premium will not be enough to offset a customer’s total net cost of purchase and return. We also show that any improvement to the returns system that results in increased logistical efficiency or marketing effectiveness will be accompanied by an increase in the selling price of the product. At the strategic level, we show that if the retailer coordinates its logistics and marketing efforts to improve the overall returns system, then it will achieve the social optimum; and if the retailer does not coordinate its efforts, then it will tend to over-invest in the function that leads in investment, and it will tend to under-invest in the function that follows. For cases in which coordination is not viable, we establish conditions to guide when either logistics or marketing should lead in improvement efforts.

Manuscript Received : 2001

Manuscript Published : 2001

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