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

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  • Fan, Zhi-Ping
  • Chen, Zhongwei

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.

Suggested Citation

  • Fan, Zhi-Ping & Chen, Zhongwei, 2020. "When should the e-tailer offer complimentary return-freight insurance ?," International Journal of Production Economics, Elsevier, vol. 230(C).
    • Handle: RePEc:eee:proeco:v:230:y:2020:i:c:s092552732030253x
    DOI: 10.1016/j.ijpe.2020.107890
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    Cited by:

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    2. Li, Yiming & Li, Gang & Tayi, Giri Kumar & Cheng, T.C.E., 2021. "Return shipping insurance: Free versus for-a-fee?," International Journal of Production Economics, Elsevier, vol. 235(C).
    3. Ren, Minglun & Liu, Jiqiong & Feng, Shuai & Yang, Aifeng, 2021. "Pricing and return strategy of online retailers based on return insurance," Journal of Retailing and Consumer Services, Elsevier, vol. 59(C).
    4. Chen, Zhongwei & Fan, Zhi-Ping & Zhao, Xuan, 2021. "Offering return-freight insurance or not: Strategic analysis of an e-seller's decisions," Omega, Elsevier, vol. 103(C).
    5. Junxia He & Jian Liu & Fan Yang & Xia Zhao, 2022. "Returns Freight Insurance Policy and the Impact from a BOPS Retailer," SN Operations Research Forum, Springer, vol. 3(1), pages 1-36, March.
    6. Lin, Jiaxin & Choi, Tsan-Ming & Kuo, Yong-Hong, 2023. "Will providing return-freight-insurances do more good than harm to dual-channel e-commerce retailers?," European Journal of Operational Research, Elsevier, vol. 307(3), pages 1225-1239.
    7. Li, Xiaoxiao & Gao, Jie & Bian, Yiwen, 2023. "Return freight insurance strategies for the online retailer and insurance company," International Journal of Production Economics, Elsevier, vol. 256(C).
    8. Liu, Jiqiong & Yuan, Rui & Feng, Shuai, 2023. "Whether to offer return-freight insurance or open a physical showroom: A strategic analysis of an online retailer’s decisions," Journal of Retailing and Consumer Services, Elsevier, vol. 75(C).
    9. Chen, Zhongwei & Fan, Zhi-Ping & Zhu, Stuart X., 2023. "Extracting values from consumer returns: The role of return-freight insurance for competing e-sellers," European Journal of Operational Research, Elsevier, vol. 306(1), pages 141-155.
    10. Duong, Quang Huy & Zhou, Li & Meng, Meng & Nguyen, Truong Van & Ieromonachou, Petros & Nguyen, Duy Tiep, 2022. "Understanding product returns: A systematic literature review using machine learning and bibliometric analysis," International Journal of Production Economics, Elsevier, vol. 243(C).
    11. Yang, Guangyong & Ji, Guojun, 2022. "The impact of cross-selling on managing consumer returns in omnichannel operations," Omega, Elsevier, vol. 111(C).
    12. Xiong, Hui & Liu, Jie, 2023. "Return insurance in a competitive market: Benefiting the high-quality or low-quality retailer?," International Journal of Production Economics, Elsevier, vol. 255(C).

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