This case study will cover the week seven reading material.
Shulman, J. D., Coughlan, A. T., & Savaskan, R. C. (2010). Optimal reverse channel structure for
consumer product returns. Marketing Science, 29(6), 1071-1085,1166,1168.
This study will need your full attention to cover the study at hand. Evaluate the study and give a full report
of your understanding of the issue at hand. Evaluate the issue of charging a return fee; would it fly in
today’s society? Acquire five citations of the tendencies of consumers that would agree with you. Also, as
a graduate student, there must be a way to practice making an educated evaluation of data placed before
you. Please remember this is an academic paper and 3rd person is required.
The case study will be 3-5 pages. The project must include a title page, table of contents, abstract, and a
reference page. The project will demonstrate the knowledge acquired through coursework completed to
date. The project is an application of this knowledge and requires the student to analyze and interpret the
topic of interest. For added resources to use on this assignment and the research paper on APA, writing,
and grammar.
*If you can’t retrieve from the address above just let me know.
Table of Contents
Contents
Abstract 3
Introduction 4
Conclusion 7
References 8
CHARGING RETURN FEE 3
CHARGING RETURN FEE 4
Abstract
It is crucial for retailers and manufacturers in the supply chain to provide
reasonable limits and amounts of return fee. Managing returned products is a costly exercise.
Retailers and manufacturers should optimize the reverse logistic channel structure in order to
ensure increased profitability. This paper provides the impacts of return fee on company
profitability and loss on opportunities. Companies should strategically evaluate the levels of their
returns and identify the reasons for product return in order to ensure perfect optimization of the
reverse logistic channel structure. Shulman, Coughlan & Savaskan (2010) believes that
companies should optimize their reverse logistic channel structure through the proper use of
return fee that will reduce levels of product returns and increase forward logistics’ efficiency.
CHARGING RETURN FEE 5
Introduction
Shulman, Coughlan & Savaskan (2010) carried out a research to identify the
“optimal reverse channel structure for consumer product returns.” It is vital for companies to
optimize the reverse channel structure for effective consumer return of products. Customers
often return products to retailers when the product does not meet the requirements or
expectations or match with expected preferences. Handling product returns is a costly issue for
both manufacturers and retailers. For instances, the United States’ electronics industry alone
spent over 13.88 billion dollars in 2007 for restocking returned products. According to Shulman,
Coughlan & Savaskan (2010), handling returns is a cost to process that company in reverse
logistics should strategically optimize in order to return benefits of recapturing value and proper
disposal. Considering that most of the returns re non-defective items that need no repair or
replacement, it is crucial to establish return policies for evaluating and assessing product returns.
The authors of this paper provide critical analysis to eliminate returns as well as
recover the costs of handling returns. This process has forced retailers to adopt the best practices
of charging returned fees to customers for penalizing customers for making returns. Shulman,
Coughlan & Savaskan (2010) employed “an analytical model of bilateral monopoly to examine
the impacts of reverse logistics channel structure on the equilibrium returns to profit and policy.”
The paper also sought to establish how either salvaging returns impact the return penalties by the
retailer or by the manufacturer. The authors’ main objectives were to determine how equilibrium
return policies provided to customers is impacted by the reverse channel structure in handling
product return and provide the reasons for returning products may be processed by producer even
if doing so reduces the NPV of returned units. The analysis by Shulman, Coughlan & Savaskan
CHARGING RETURN FEE 6
(2010) provides “an explanation for the differences observed in the handling of product returns
and gives insight about how retailers and manufacturers should set prices in forward and reverse
channels of supply chain network.”
Shulman, Coughlan & Savaskan (2010) used a model return and pricing policy
decisions in vertically integrated systems that can select the salvaging technologies of the
retailing levels and the manufacturing levels depending on their greatness. The authors used a
sequence of events in modeling the process of product returns offering important equations and
assumptions of either manufacturer or retailer assuming the responsibility of handling product
returns. For instances, Shulman, Coughlan & Savaskan (2010), “consumers will purchase the
product that offers the greatest utility and will make a purchase initially if and only if their
expected utility is greater than or equal to zero, that is, if u, is sufficiently high.” The findings
show that it is likely for equilibrium return penalties to be more within the network of reverse
logistics for which returned items have higher values. Thus, “it is possible for the retailer to
charge a higher return penalty when salvaging returns than if the manufacturer salvages returns.”
The research by Shulman, Coughlan & Savaskan (2010) provides critical information about the
prospect of charging return fees to product returns. Both manufacturers and retailers find it costly
in handling product returns. This is because product returns represent an enormous cost, which
significantly affects retailers and manufacturers alike. Therefore, retailers and manufacturers
should learn to manage returns effectively for optimizing returns and increasing company
profitability.
Shulman, Coughlan & Savaskan (2010) examined “consumer returns of non-
defective products that consumers discover not to match with their expected preferences.” The
authors believed that these kinds of returns are not similar to overstock returns because the return
CHARGING RETURN FEE 7
policies are interrelated with the demand of the product. They believe that the return penalties
charged to customers have numerous implications and effects. Product return penalty helps in
recouping the costs related to returns from customers. It also helps in preventing the level of
returns from happening as consumers fear charges or penalties associated with product return
(Govindan, Soleimani & Kannan, 2015). However, the return penalty reduces the consumer’s
willingness to pay for the original purchases due to the uncertainties about whether or not the
product aligns with expected requirements. For instance, in the network setting, the choices for
product return penalty add an extra level of complexity because it may unevenly impact the
manufacturer and the retailer. Therefore, the return penalty and price charged by retailers to
customers are aimed at maximizing retailers’ profits. However, the return penalties shift the
demand curve, which significantly affects the quantity sold by manufacturers. According to
Shulman, Coughlan & Savaskan (2010), “even if the retailer is more efficient than the
manufacturer at salvaging returned units, it is possible for the retailer to charge a higher return
penalty when salvaging returned units than if the manufacturer did the salvaging.”
Shulman, Coughlan & Savaskan (2011) examined the restocking and pricing fee
decisions of two rival companies who sell products, which are horizontally differentiated. They
established that return fee can only be sustainable in a competitive environment depending on
return policies adopted by an organization. However, it has adverse effects when customers are
less informed about the product fit and when placing substantial importance on how smart
products meet their expected demands. Shulman, Coughlan & Savaskan (2011) established that
“equilibrium restocking fees in a competitive environment can be higher than the fees charged in
a monopolist.” Wu & Zhou (2017) provides critical insights on how companies should optimize
reverse channel choices under logistics competition. They establish collection which retailer-
CHARGING RETURN FEE 8
managed amounts to a higher rate which is unfavorable and manufacturer-managed collection in
one channel may change the equilibrium. The conclusion is that there is the existence of the
prisoner dilemma in which Pareto optimal solutions allow producers to apply manufacturer-
managed collection; however, the dominant strategy is the retailer-managed collection (Petersen
& Anderson, (2015).
Conclusion
The charging return fee is a complex process for both retailers and manufacturers.
Managing product returns is a costly process that companies should adequately evaluate in order
to establish optimal revere logistics processor channel structure. Return penalty or fee is always
hard to understand and apply. Manufacturers and retailers should not charge return fee unless
they select a reasonable limit and amount where consumers are returning products that are not in
their original condition or do not require repair or repackage. Retailers and manufacturers should
charge return fee by recommending a reasonable amount. Therefore, retailers and manufacturers
should not charge return fee for products returned because they are defective, damaged or not-as-
described in the listing. Companies, which charge return fee can deter consumers from buying
their products, leading to, lost opportunities and reduced customer satisfaction levels.
CHARGING RETURN FEE 9
References
Govindan, K., Soleimani, H., & Kannan, D. (2015). Reverse logistics and closed-loop supply
chain: A comprehensive review to explore the future. European Journal of Operational
Research, 240(3), 603-626.
Petersen, J. A., & Anderson, E. T. (2015). Leveraging product returns to maximize customer
equity. Handbook of research on customer equity in marketing, 177-160.
Shulman, J. D., Coughlan, A. T., & Savaskan, R. C. (2010). Optimal reverse channel structure
for consumer product returns. Marketing Science, 29(6), 1071-1085.
Shulman, J. D., Coughlan, A. T., & Savaskan, R. C. (2011). Managing consumer returns in a
competitive environment. Management Science, 57(2), 347-362.
Wu, X., & Zhou, Y. (2017). The optimal reverse channel choice under supply chain
competition. European Journal of Operational Research, 259(1), 63-66.
