Omni-channel Pricing and Procurement Strategies with Consumer Returns and Order Cancellation under Reference Point Effects

Abstract

This paper considers the online retailer's omni-channel retail operations under reference point effects in which consumers can cancel their orders before payment and return the products after payment if the products doesn't meet their expectation. The online retailer's optimal pricing and inventory decisions are derived under the omni-channel strategy by maximizing the total expected utility. The analysis reveals a threshold strategy on the retailer's optimal pricing and inventory decisions and the optimal total expected utility while considering the impact of reference point effects. Moreover, with the increase of the retailer's loss aversion or the optimism level, the order quantity and overall expected utility decrease, while the optimal price presents a threshold type. Finally, the comparison of the utility performance between with and without reference point effects is presented.