More Retailers Offering Free Shipping on Returns
by: Loretta Chao
Oct 12, 2015
Click here to view the full article on WSJ.com
by: Loretta Chao
Oct 12, 2015
Click here to view the full article on WSJ.com
TOPICS: Marketing
SUMMARY: Retailers are making free returns available to more online customers, delighting consumers but raising costs for the companies.
CLASSROOM APPLICATION: Instructors can present three points about the article. First, the choice whether to offer free shipping on online returns may be a prisoner's dilemma. Second, they can also highlight the point that a current costly decision (to offer free shipping on online returns) may have future benefits (retaining customers). Third, because "free shipping" is not free, consumers may be higher prices when the policy is implemented, which means that consumers who tend not to return products may be made worse off by the policy.
QUESTIONS:
1. (Advanced) Consider a game in which each of two online retailers decides whether to offer free shipping on returns. Suppose each retailer's payoffs are the following: 10 if both retailers offer free shipping; 15 if the retailer offers free shipping, but the competitor does not; 5 if the competitor offers free shipping, but the retailer does not; and 12 if neither retailer offers free shipping. What type of game are the retailers playing? What is the Nash equilibrium of the game? What is the dilemma in the game?
2. (Introductory) What is the long-term effect to a retailer of a customer having to pay to return a product to the retailer?
3. (Advanced) No shipping is "free." Classify the type of consumer who is made better off by the offer of free shipping for online returns and the type of consumer who might be made worse off.
1. (Advanced) Consider a game in which each of two online retailers decides whether to offer free shipping on returns. Suppose each retailer's payoffs are the following: 10 if both retailers offer free shipping; 15 if the retailer offers free shipping, but the competitor does not; 5 if the competitor offers free shipping, but the retailer does not; and 12 if neither retailer offers free shipping. What type of game are the retailers playing? What is the Nash equilibrium of the game? What is the dilemma in the game?
2. (Introductory) What is the long-term effect to a retailer of a customer having to pay to return a product to the retailer?
3. (Advanced) No shipping is "free." Classify the type of consumer who is made better off by the offer of free shipping for online returns and the type of consumer who might be made worse off.
Reviewed By: James Dearden, Lehigh University
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