Does the buy-online-and-pick-up-in-store strategy with pre-orders benefit a retailer with the consideration of returns?

Retailers nowadays increasingly adopt the buy-online-and-pick-up-in-store (BOPS) strategy with pre-orders for order fulfillment. In this paper we study such a strategy for a retailer in the presence of both informed and uninformed consumers. Under such a strategy, the retailer sells the product over two periods, where the informed consumers may make pre-orders with unknown valuations in the first period and pick up the pre-orders in store with realized valuations in the second period. We first derive the optimal price discount for the pre-orders and the optimal order quantity for the demands over the two periods. Then, we show that the BOPS strategy with pre-orders is not necessarily beneficial to the retailer in general. We identify the thresholds for the unit production cost and demand uncertainty, above which the BOPS strategy with pre-orders is beneficial. In addition, we derive the conditions under which the BOPS strategy with pre-orders and product returns is favourable to the retailer, even when the returned product cannot be re-sold. Moreover, studying the effects of the proportion of the informed consumers in the market, we show that under some conditions the BOPS strategy with pre-orders will generate more profit to the retailer when the proportion of the informed consumers increases.