An EOQ model for joint ordering, pricing, and return policy with advance booking discount

Contemporary business strategies, such as return processes and advance booking discounts, have become prevalent, particularly in the e-commerce sector, to boost sales and enhance the shopping experience. This research highlights the crucial role of coordinating return policies, order quantity, and pricing decisions to enhance inventory management efficiency. This paper presents a profit maximization model for obtaining optimal ordering quantity, selling price, and refund amount. The inventory cycle involves both advance bookings and spot sales, offering discounts and the option of order cancellations during the advance booking phase. A return policy is used as a marketing tactic, outlining the refund amount applicable for returned products. The demand is assumed to be the selling price and refund amount dependent, while the return rate is refund amount dependent. The analysis employs discounted cash flows, considering various time points. Numerical analysis is conducted to investigate the model’s behaviour, yielding valuable managerial insights. Key findings include extending the booking period can still benefit businesses despite potential cancellations. Moreover, using marketing strategies to influence customer sensitivity to return policies may be advantageous. E-commerce businesses can leverage this framework to optimize inventory levels, pricing and return policies.