Selling mode choice and return policy for advance selling in an e-commerce platform with social influence

Abstract

Advance selling is increasingly employed to mitigate demand uncertainty, raise consumer awareness of products, and even exert social influence on subsequent sales. However, consumers may hesitate to pre-order products due to uncertainty about product valuation. As a response, sellers have begun implementing return policies and utilizing online retail platforms to alleviate the uncertainty. This study aims to investigate the interaction between return policies for advance selling and selling formats of e-commerce platforms considering the impact of social influence. We examine a two-period platform supply chain that includes agency selling, reselling, and hybrid selling formats with and without return policies. Using game theory models, we analyze pricing decisions and profits of each player under six possible scenarios. The results indicate that the manufacturer consistently prefers adopting a Money-Back Guarantee (MBG) return policy regardless of the selling format. However, the MBG return policy is not always advantageous for the platform, except in the case of low social influence. In such a case, the platform may implement the MBG return policy to boost advance sales, thereby enhancing the penetration power from advance sales to regular sales. Regarding selling formats, the platform and the manufacturer opt for the reselling and agency selling, respectively, when the commission rate is low; otherwise, they adopt the agency selling and hybrid selling, respectively. Furthermore, we explore the impact of critical drivers on the pricing decisions and profits within the platform supply chain. Our study offers valuable insights into implementing return policies and determining selling formats.