Journal of Retailing and Consumer Services 65 (2022) 102848

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Journal of Retailing and Consumer Services

journal homepage: www.elsevier.com/locate/jretconser

Shopping in the omnichannel supply chain under price competition and

product return
Sarat Kumar Jena a, Purushottam Meena b, *
a
Department of Operations Management, Xavier Institute of Management, XIM University, Bhubaneswar, Odisha 751013, India
b
Department of Supply Chain and Information Management, School of Business, College of Charleston, Charleston, SC, 29424, USA

A R T I C L E I N F O A B S T R A C T

Keywords: In recent years, omnichannel retailing has created value for prospective consumers. The rise of omnichannel
Test-in-store-and-buy-online retailing has changed consumers’ buying habits, and manufacturers are facing stiff competition from retailers. To
Omnichannel retailing reduce this competition effect, manufacturers and retailers often work together to reduce showroom display
Supply chain competition
costs. Despite this practice, there is little understanding of how omnichannel retailing impacts supply chain (SC)
Supply chain integration
Return policy
profit under competitive conditions. We investigate the test-in-store-and-buy-online (TSBO) retailing strategy
and its impact on SC profit and price competition between manufacturers. The retailer sells products of both
manufacturers through its website but displays products of only one manufacturer in the showroom, which bears
the displaying cost. The retailer adopts a return policy for the other manufacturer. Stackelberg game was used to
examine how members of the chain interact, and Nash equilibrium was used to find optimal strategies for players
under decentralized and integrated channels. The results show that the TSBO strategy in retailing benefits all
supply chain players under the integrated channel. A further interesting finding is that omnichannel SC profits
are highest when retailers adopt a return policy. When two manufacturers compete and adopt different sales
models, the manufacturer who uses the TSBO retail model reaps the most profit. Several other managerial in­
sights are drawn from sensitivity analyses.

1. Introduction firms. For example, The Idle Man, a UK-based online menswear orga­
nization, opened physical showrooms to provide better product infor­
E-commerce has witnessed significant growth in the last decade. mation (Li et al., 2020). Amazon has also opened showrooms in Beijing
According to the National Retail Federation (2021) report, the amount to allow customers to inspect the product and get shopping advice from
of merchandise returned by consumers to retailers was $428 billion (i.e., salespeople (Zhang et al., 2020). According to Jianlin Wang, the
10.6 percent of total sales) in 2020. The global online revenue was chairman of Dalian Wanda Group, “Online-only will not survive; all
approximately $4.29 trillion in COVID affected 2020, increasing almost businesses need to integrate online and offline resources” (Deng, 2017).
20 percent from the previous year (Young, 2021). Nowadays, most With the advent of omnichannel customers, retailers are increasingly
e-commerce firms get a considerable amount of product return primarily integrating offline and online channels or multichannel retailing
due to incomplete and ambiguous product information on their websites (Reinartz et al., 2019).
(Internet Retailer, 2013; Zhang et al., 2018; Vasić et al., 2019). Often it is Because of the swift growth of multichannel retailing, big companies
difficult for the sellers to communicate product fit information on online like Apple, Walmart, Starbucks, and Zara have launched multichannel to
channels effectively. Product returns in physical stores and online are sell their products via physical showrooms and online platforms (Huang
not only costly but induce several other challenges, including inventory and Jin, 2020). Consumers are becoming increasingly familiar with
management (Boyajian, 2018). multichannel shopping. For instance, Deloitte’s 2014 report stated that
Several e-commerce firms nowadays keep physical stores as show­ every third consumer uses multichannel for shopping. In addition,
rooms to offer in-person shopping experiences to consumers via sales­ Huang and Jin (2020) find that more than 92 percent of US consumers
persons. According to Bell et al. (2018), the option of physical shopped through multiple channels. Multichannel helps consumers
showrooms reduces product returns and increases profit for e-commerce test/check the quality of products in-store and buy the same or related

* Corresponding author.
E-mail addresses: saratjena@xim.edu.in (S.K. Jena), meenap@cofc.edu (P. Meena).

https://doi.org/10.1016/j.jretconser.2021.102848
Received 22 September 2021; Received in revised form 21 November 2021; Accepted 24 November 2021
Available online 7 December 2021
0969-6989/Published by Elsevier Ltd.
S.K. Jena and P. Meena Journal of Retailing and Consumer Services 65 (2022) 102848

products online. It is called test-in-store-and-buy-online (TSBO) Situation 1: The manufacturer sells its products online through the
retailing. In practice, the hybrid combination of the online and physical retailer without considering the return policy. For example, Samsung, a
showrooms more efficiently meets consumers’ needs than a single manufacturing company, sells its products through Snapdeal, an Indian
channel. Therefore, organizations are adding an online platform to in­ online retailer (Jena et al., 2017). Similarly, Amazon India also does not
crease the market size and physical showrooms to enhance consumers’ allow returns for mobile phones of any company (TOI Tech, 2016). In
shopping experience. some cases, Amazon also does not allow returns on products such as
For example, Columbia Business School (2013) reported that 58 jewelry, health & personal care, and gift cards (Phillips and Bufete,
percent of adult smartphone owners were interested in showroom 2021). Situations 2: The manufacturer and the retailer form an inte­
shopping. Butcher (2017) finds that more than 50 percent of consumers grated omnichannel SC and sell products directly to the end customers,
use their smartphones and mobile apps while shopping in-store to whereas other manufacturers sell their products online through the
improve their shopping experience. The organizations that set up a retailer. For instance, online retailer Flipkart collaborates with Motorola
physical store persuade consumers to try their product in showrooms but and Alcatel to sell their products through the TSBO retiling process.1
buy the same or similar product online (Zhang et al., 2018, 2020). Similarly, several other big retail brands like Nike, Gap, Michael Kors,
Meilele, one of China’s online furniture retailers, set up physical stores Gucci, Vince, and Kate Spade collaborate with Amazon to sell their
nationwide to display only a few selected brands (Zhang et al., 2020). products (Webster, 2017).
These omnichannel settings help organizations improve operational ef­ Situations 3: In this case, the manufacturer collaborates with the
ficiency and decrease returns costs (Huang and Jin, 2020; Zhang et al., online retailer to sell its product. For manufacturers, it is critical to
2020). “Omni-channel retailing refers to the use of various channels to collaborate with their online retailers in today’s business environment
interact with customers and fulfill their orders. The interaction between as it helps them boost their brands’ awareness, speed to market, and
a customer and a retailer primarily has three flows—information, sales. For instance, iTunes, Spotify, and AliMusic in the music industry,
product, and funds. The use of different channels for each flow helps to JMEI, one of the cosmetics e-tailers in China, and VANCL, a clothing
categorize the components of omnichannel retailing” (Chopra, 2016). giant in China, are using reseller channels (Chen et al., 2018; Yan et al.,
The introduction of omnichannel retailing provides an impetus for 2019; Alaei et al., 2020). Situation 4: This model extends situation1 by
customers to visit showrooms. Nevertheless, several online retailers (or considering the return policy. Some retailers have implemented the
manufacturers) still have not adopted omnichannel retailing in devel­ TSBO strategy J.C. Penny, Apple, IKEA, and J. Crew (Alaei et al., 2020;
oping countries like India and China because of substantial operating Mandal et al., 2021).
costs. Firms have to pay for the rent or acquire commercial real estate, The remainder of the paper is organized as follows. A summary of the
which is very expensive (Li et al., 2020). The rise of omnichannel relevant literature and the contributions of this study are presented in
retailing is changing customers’ shopping behavior and creating stiff Section 2. Section 3 discusses notations and model assumptions. Math­
competition among retailers and manufacturers (Lee et al., 2003; Kim ematical models are developed in Section 4. A numerical experiment,
and Chun, 2018). Some retailers work with manufacturers in an inte­ results, discussions, and sensitivity analyses are given in Section 5.
grated manner to slash the competition effect and reduce product dis­ Finally, the conclusion and the scope for future research are presented in
playing costs in the physical showrooms. The price competition between Section 6.
multiple manufacturers to sell their products through a common retailer
is a real issue faced by manufacturers in practice. Some studies assessed 2. Literature review
how online retailers decide to offer return policies only on online retail
channels to enhance online sales and profit margins (Zhang et al., 2020; This paper is primarily related to three research stream­
Huang and Jin, 2020; Li et al., 2020). Few studies have analyzed price s—omnichannel, online retailing, and competition in the SC. The
competition between manufacturers in omnichannel retailing. However, following sub-sections position this work in comparison to the existing
there is no study of TSBO when two manufacturers compete on price SC literature from different perspectives.
with centralized and decentralized models.
Emanated from the above gaps in the literature, this paper in­ 2.1. Omnichannel retailing
vestigates a two-stage supply chain (SC) problem where the retailer is
the follower and manufacturers are Stackelberg leaders. The primary The omnichannel has appeared as an emerging retailing model that
objective is to explore the retailer’s operational decisions and then integrates physical store channels and online channels into a single
investigate the TSBO strategy and return policy under price competition. channel (Rigboy, 2011; Bell et al., 2018). In recent years, several studies
This paper investigates the following research questions: (i) which examined the offline-to-online channel of omnichannel. At the omni­
retailing system is the most profitable in the omnichannel SC? (ii) does channel level, the literature primarily discusses physical store retailing.
the TSBO strategy serve the Omnichannel SC better than online retailing Bell et al. (2014) empirically investigate the retailer’s
under price competition? and (iii) how does the return policy affect the buy-online-and-pick-up-in store (BOPS) scheme. Authors find that the
omnichannel SC profit? BOPS scheme reduces online sales and increases physical store sales.
Analytical models are formulated considering two competing man­ Gao and Su (2017) analyze the BOPS scheme and show that the BOPS is
ufacturers and one omnichannel retailer to address the above research suitable for products sold in physical stores. Jin et al. (2018) examine
questions. The retailer sells both manufacturers’ products online and the BOPS scheme for order fulfillment, where the physical store adopts
displays only one of the manufacturer’s products in the physical show­ the BOPS to fulfill orders from both online and offline customers. Their
rooms, which bears the displaying cost. Consumers may check the results show that the ratio of inventory cost and the BOPS customers’
quality of products displayed in the showrooms and make purchases arrival rate is vital in determining the BOPS market size.
online. As one manufacturer only sells its product online through the Similarly, Shi et al. (2018) analyze the BOPS scheme for order
retailer, we consider another case where the retailer offers the return fulfillment under-informed and uninformed consumers and find that the
policy for online manufacturer products to increase the market size. In BOPS scheme is not helpful to the retailer. Acquila-Natale and Cha­
this case, the retailer bears product return cost. Products often get parro-Peláez (2020) surveyed 22 retailers from the clothing industry
defective while shipping from the retail store to the end-consumer. To operating in Spain to find indicators to measure channel integration. Li
address this issue, we develop different models considering the inte­
grated SC between the retailer and manufacturers under without and
with products return policy. In our models, the following four situations 1
https://indianonlineseller.com/2015/10/flipkart-uses-omni-channel-rou
are considered. te-to-attract-more-customers/.

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et al. (2021) discuss an online-to-offline SC considering cooperative 2.3. Product returns

advertising under the BOPS scheme. The authors find that BOPS scheme
implementation can partially substitute the effect of cooperative This paper focuses on product returns, a widespread phenomenon
advertising. Jiang et al. (2020) analyze the BOPS scheme to explore the associated with online retailing. Researchers have studied return pol­
collaboration between the manufacturer and the retailer for pricing and icies to understand better how product returns affect customers’ buying
service decisions. They observe that the service value of a store strongly decisions and retailers’ profit (Davis et al., 1998). Matthews and Persico,
affects the player’s pricing strategies. Li et al. (2020) discuss omni­ 2007 investigate the returns policy for consumers’ goods under two
channel operations strategies where the retailer offers coupons via on­ scenarios—when customers are informed and uninformed value of
line channels to increase the market share and profit considering BOPS. goods. The authors develop mathematical model models to determine
Their results show that coupon offers are always not helpful in the optimal price and refund amount of products when customers are
increasing the market share. Saha and Bhattachrya (2021) examine the informed and uninformed about the product value. Hua et al. (2016)
BOPS scheme in the context of store inventory policy. They observe that examined the free shipping services and paid product return policy for
BOPS order ties up inventory and incur additional inventory holding an online retailer under two situations—when the shipping and returns
costs. Kong et al. (2020) analyze the impacts of BOPS scheme adoption costs decision is taken jointly and separately. They use a theoretical
on the retailer’s pricing decisions and find that the BOPS scheme is not model to determine online retailers’ optimal shipping strategy and
always beneficial. product return service charge (RSC). The authors show that a joint de­
Zhang et al. (2020) analyzed offline-to-online inspire omnichannel cision on the shipping and return cost is the best option for the online
structures and their effect on upstream manufacturers. They find that retailer, and usually, the free shipping strategy is accompanied by a high
the BOPS option always improves the SC performance. Alonso-Garcia RSC rate. However, their study does not consider the physical store
et al. (2021) investigate an omnichannel considering interrelationship option. Chen and Chen (2017) formulate a model for a retailer to select
between manufacturers under the business-to-business scenario. They an optimal channel from offline-only, online-only, or both and related
identify omnichannel characteristics but overlook how the return policies. Their results show that the online channel is the most
offline-to-online model of omnichannel retailing affects the manufac­ attractive choice when retailer offers personalized pricing. According to
turer and retailer’s profit under price competition and return policy Gao and Su (2017a), when consumers face product value and avail­
simultaneously. Very few studies investigate the TSBO strategy under ability uncertainties, retailers can effectively provide information to
price competition and integrated systems using the Stackelberg model. omnichannel consumers online and offline. It was found that virtual
This paper addresses this gap by investigating how the retailer’s return showrooms might increase returns on online channels while lowering
policy and omnichannel operations impact SC profit under price profits if retailers encourage excessive migration of customers from
competition. online to in-store channels. Zhang et al. (2017) investigate how two
components of return policy that affect product quality and customer
service quality, including return window—a short or a long return
2.2. Online retailing period—and return depth—full vs. partial refunds. They find that the
long return window and full refund positively improve service quality
Online retailing has introduced several new business practices to and boost consumers’ purchase intention.
expand market size. For example, Amazon in the USA and Flipkart in Chen et al. (2018) studied a money-back guaranteed product returns
India allow retailers to sell their products online through their online problem of two competing retailers who sell identical products to het­
platform and charge a retail commission (Chung et al., 2012; Abhishek erogeneous customers but differ on service quality. Specifically, they
et al., 2016, Shen, 2018, Lin and Zhou, 2019). These online platforms develop a game-theoretic model to investigate the impact of leadership
help create new potential markets for the retailers (Shen, 2018; Liu and product return strategies on two competing retailers’ market shares
et al., 2019). Chen et al. (2019) conducted a case study on JD.com, one and profits in a duopoly setting. The authors find that the return policy
of the biggest e-commerce platforms in China, to explore how supply significantly affects the price leadership strategy of retailers. However,
chain finance (SCF) practices enhance competitive advantage. Modak they do not consider omnichannel retailing like our paper. Radhi and
and Kelle (2019) analyze online retailing considering the price and Zhang (2019) study a product return problem of a dual-channel retailer
uncertain demand under decentralized and centralized SC. Their results that sells products through non-competing online and physical stores.
show that a centralized channel provides higher profit compared to a They developed several newsvendor models to investigate the impact of
decentralized SC under uncertainty. Lim et al. (2020) discuss how online different cross-channel product returns policies on omnichannel re­
retailers replenish each product and allocate inventory to fulfill the tainer’s order quantities. These authors did not consider a two-stage
centers. Wang et al. (2020) analyze a hybrid format online retailing SC omnichannel supply chain where two manufacturers compete to sell
where the manufacturer sells its product to the online retailer and an similar products through an omnichannel retailer. Alaei et al. (2020)
intermediary party through a wholesale contract. The authors observe develop a model considering two competing manufacturers and one
that the manufacturer and the retailer can generate higher profits when online retailer, where manufacturers already have their web stores with
information is shared with the intermediary. Wang et al. (2020) inves­ product return options and are open to implementing one more channel
tigate a problem where a manufacturer sells its products to an online from a reseller or marketplace. Their results show that the return policy
retailer, an intermediary, and a wholesale distributor in a hybrid-online does not affect manufacturers’ decision to select the reseller or
retailing SC. They developed four information-sharing models, and their marketplace but impacts their profit. Moreover, Huang & Jin (2020)
findings suggest that intermediaries are always encouraged to exchange analyze a buy-online and returns-in-stores (BORS) scheme based on
information as it improves the overall profit. Xu et al. (2020) study the omnichannel mode under competition, and their results show that a
coordination via wholesale price and revenue sharing contract in the SC competitive environment benefits retailers under the BORS scheme.
where a retailer sells products offline and online. Their results show that Their study does not consider product information provided to cus­
SC coordination is more effective when the online platform is quite big. tomers in the physical store. Nevertheless, our work examines product
Chernonog et al. (2021) analyze a two-tier SC where a dominant retailer information through the TSBO retailing strategy in a competitive
acts as a consignor and shares revenue with a manufacturer. They found environment.
that the manufacturer could benefit from a strategic information-sharing Very few studies investigate offline-to-online mode, i.e., offering
policy when the retailer estimated the information’s cost function. product information offline, purchasing online, and return policy. Zhao
However, all these studies have not considered the TSBO retailing with et al. (2020) examined the circumstances under which a retailer faces
the product return policy. uncertain demand and uncertain consumer valuations with policies that

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allow consumers to afford returns and the retailer to pay return shipping retailing considering buy-online-and-pick-up-in store (BOPS) (Shi et al.,
costs. Their study shows that consumer return policies are better if the 2018; Jiang et al., 2020; Li et al., 2021). Very few studies discuss TSBO
proportion of non-defective returns is low; otherwise, the retailer return retailing in SC literature (Zhang et al., 2020; Li et al., 2020; Mandal
policies are better. Similar to Zhao et al. (2020), Huang and Jin (2020), et al., 2021). However, the literature has not studied TSBO retailing with
and Radhi and Zhang (2019), our study allows the manufacturer to set the decentralized and integrated system under the Stackelberg model (Li
up a showroom with the help of an online retailer. In addition, we et al., 2020). To the best of our knowledge, this is the first study to
explore the benefits of TSBO retailing strategies for manufacturers and develop analytical models to investigate omnichannel retailing consid­
retailer profits. ering the TSBO strategy, return policy, and price competition under the
Recently, Mandal et al. (2021) investigated omnichannel for man­ Stackelberg model.
aging product returns by considering experience in-store and buy online Second, the manufacturer and retailer consider omnichannel a
(ESBO), brick-and-mortar (B&M), and BORS retailing. According to competitive strategy because it offers customers the higher perceived
their study, if the retailer can only ship products returned to customers value of products (Hajdas et al., 2020; Huang and Jin, 2020). Our model
at a low cost, it is profitable to sell them exclusively online. However, considers a price and product return sensitive demand function. Further,
their study does not consider the effect of decentralized and centralized physical showroom deployment effort, return policy, and selling price
TSBO retailing under a competitive environment. We address the above are considered decision variables to find an optimal solution. Results
gaps in the literature by considering omnichannel retailing under price show that the channel profit is highest in the integrated system when the
competition demand. In addition, we conduct comparative analyses manufacturer cooperates with the omnichannel retailer without
between with and without return policies under decentralized and in­ considering the return policy. This finding is contrary to the previous
tegrated systems. Further, physical showroom deployment effort, return studies (Huang et al., 2020; Jiang et al., 2020; Li et al., 2020).
policy, and selling price are considered decision variables to find an Finally, through systematic analysis of optimal return policy and
optimal solution. physical showroom deployment effort under competitive market de­
mand, this study provides various managerial insights for effective
2.4. Competition between different channel retailing decision-making. For instance, manufacturers and retailers both make
strategic and operational decisions to achieve economic success. More­
Introducing a new online retailer creates competition between online over, our finding provides better insights for policymakers to make
and offline retailers, creates a conflict between retailers, and reduces the policy for the manufacturer and retailer in SC management to promote
SC performance (Basak et al., 2017; Li and Zhou, 2019). David and omnichannel retailing.
Adida (2015) and Liu et al. (2017) investigate how offline and online
retailers compete when the manufacturer sells its products through 3. Mathematical model
online and offline retailers. They find that SC efficiency decreases as
competition intensity increases. In recent years, some studies examined In this section, we formulate analytical models with and without
competition between offline and online retailers where customers test considerations of product return to capture the optimal channel
products at an offline retailer and purchase it from an online retailer at a competition strategy in the omnichannel SC. The SC consists of a single
lower price (Balakrishnan et al., 2014; Basak et al., 2017). Jing (2018) retailer and two manufacturers, where two manufacturers sell similar
finds that cooperation in SC generates higher profit compared to the types of products through an omnichannel retailer (See Fig. 1). We call
competition in SC. Kim and Chun (2018) discuss the effects of the manufacturer 1(2), who produces the product 1(2) and sell them
intra-cannibalization and inter-competition between manufacturers and through a common omnichannel retailer (R). The online retailer adopts
retailers in the SC, where the manufacturer adopts a direct online the omnichannel retailing strategy by providing physical showrooms in
channel, and the retailer offers an offline channel. The competition case combination with online platforms. The retailer presents products on the
considered in literature only refers to the selling channels between online platform. However, only manufacturer 1’s products are displayed
manufacturer and retailer. There are limited studies that investigate the in the physical store, and manufacturer 1 bears the product’s display
competition between different retailers. cost in the physical showroom for sales assistants. It is assumed that the
Li and Zhou (2019) analyze the impact of cooperation and compe­ sales assistance cost includes payroll, training, and storage capaci­
tition between online retailers and offline showrooms on SC profit under ty—the retailer can provide additional information for manufacturer 1
asymmetric information. Liu et al. (2020) investigate the price and products to consumers. The information provided in the physical
service level balance between an e-retailer and omnichannel retailer in a showrooms is a kind of sales effort (Cachaon, 2003; Zhang et al., 2020).
competitive market. They find that the online retailer’s profit consis­ The notations used in the model are given in Table 1.
tently exceeds the omnichannel retailer’s, and the return policy The retailer’s cost of providing information online for product 1 at a
competition between online and offline retailers significantly affects the level λ (0 ≤ λ ≤ 1) can be denoted as f(λ), where f(0) = 0,f’(λ) > 0, and
SC profit. Recently, Jin et al. (2020) investigated SC competition f"(λ) > 0. For analytical tractability, we assume that the information
considering omnichannel retailers’ return policy under the BORS option. service cost is quadratic in λ, i.e., f(λ) = 1/2 h λ^2, in which h is a cost
Their results show that the retailer selling under the BORS strategy does factor (Cachaon, 2003; Ofek et al., 2011; Jena and Ghadge, 2020; Li
not always guarantee a higher profit. et al., 2020; and Zhang et al., 2020). It is well established in retailing
In contrast to the above literature on competition between an online literature that a higher service level means substantially higher prices
retailer(s) and offline retailers, our study examines the optimal channel (Jena and Meena, 2019). Based on different omnichannel formats
competition strategy for TSBO retailing under the Stackelberg model adopted by the manufacturers and retailers, we consider four alternative
with or without a return policy. We also consider an integration model models (see Fig. 1) as discussed below:
between manufacturers and omnichannel retailers.
• Decentralized system (Model d): In this mode, the two manufac­
2.5. Unique contributions turers 1(2) sell their product online through the retailer without
considering the return policy. The retailer displays only product 1 in
The contribution of this study to the existing literature is threefold. its physical showroom (see Fig. 1a). In this decentralized system, all
First, in the existing literature, supply chain coordination is recognized members compete among themselves to maximize their profits.
as an essential policy in omnichannel retailing (Zhang et al., 2020; While maximizing personal profit, all members ignore the impact of
Hajdas et al., 2020; Huang and Jin, 2020; Jiang et al., 2020; Li et al., their decisions on other members of the SC. Each manufacturer
2020; Mandal, 2021). Most current studies also discuss omnichannel

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Fig. 1. The omnichannel supply chain structure.

predicts the wholesale price of his competitor and accordingly sets this model, manufacture 1 wants to maximize its profit by competing
his margin on products. with manufacturer 2 and the retailer integrated SC.
• Integration between retailer and manufacturer 1 (Model rm1): In • With return policy (Model r): This model extends Model d by
this model, manufacturer 1 and the retailer form an integrated considering the return policy. The Model r assumes that consumers
omnichannel SC and sell products directly to the end customers, can return the product to the retailer if it does not match the online
whereas manufacturer 2 sells the product online through the retailer description or receive defective products, and the retailer bears the
(see Fig. 1b). In this model, manufacture 2 wants to maximize its return cost (see Fig. 1d).
profit by competing with manufacturer 1 and the retailer integrated
SC. The demand function is dependent on the price and the product
• Integration between retailer and manufacturer2 (Model rm2): This displaying cost. It is derived as follows:
model considers that the retailer and manufacturer 2 form an in­
Manufacturer ​ 1 ​ : ​ D1 = α1 − βp1 + γ(p2 − p1 ) + θλ, (3.1)
tegrates SC and sell products directly to the end customer, whereas
manufacturer 1 sells products online through the retailer online
Manufacturer ​ 2 ​ : ​ D2 = α2 − βp2 + γ(p1 − λ − p2 ). (3.2)
platform(see Fig. 1c). However, the retailer provides additional in­
formation for products of manufacturer 1 to the end consumers. In where, Di and pi , i = 1, 2 are the market demand and per-unit retail

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Table 1 service for product 1 in the physical showroom, and θ is the coefficient of
Description of the model’s notation. displaying product 1 in the showroom. On the other hand, bf is the re­
Notations Description tailer’s return cost that has a positive impact on demand (Alaei et al.,
2020; Huang and Jin, 2020; Li et al., 2020). where f > 0 if the retailer
Indices
i Index of firms: manufacturer 1 (i = 1) for product 1and manufacturer 2 provides a full refund in his e-commerce store, otherwise f = 0. Con­
(i = 2) for product 2 sumers can return the product with a full refund if they are unsatisfied
d Index of the decentralized channel without the return policy with manufacturer 2’s product purchased from the online channel. The
rmi Index of the integrated channel between retailer and manufacturer i notations used to develop the mathematical model are given in Table 2.
without the return policy
R Index of the decentralized channel with the return policy
This paper considers a Stackelberg game model where manufacturers
πR The profit of the retailer act as leaders and the retailer is the follower. Initially, each manufac­
πMi Profit of the manufacturer i, (i = 1,2) turer 1(2) simultaneously decides the wholesale price of their product 1
R Return policy model (2). Then, the online retailer determines the optimal selling price of both
Parameters products 1(2) to maximize their profits. As discussed above, we devel­
α1 The market base of product 1 oped four omnichannel SC models, including the integrated channel, to
α2 The market base of product 2 understand the impact of the return policy on the SC profit under price
β The coefficient of price per unit products competition.
γ The cross-price elasticity of the product Subscripts Mi, R, r, d, and rmi are used respectively to indicate
θ The coefficient of displaying per unit product1in the physical store manufacturer i, (i = 1, 2), retailer, return policy, decentralized channel,
B Given constant and the integrated channel between the retailer and manufacturers.
c1 Producing cost of the product 1 per unit
c2 Producing cost of the product 2 per unit 4. Model development
t Percent of return product 2
S Salvage value of the returned product 2 This section formulates mathematical models considering three
H The cost factor for providing product 1 information
Decision variables
different cases: (a) Model d, (b) Model rm1, and (c) Model rm2 as follows.
p1 Selling price for product 1 The retailer’s profit function can be written as:
p2 Selling price for product 2 πR = D1 (p1 − w1 ) + D2 (p2 − w2 ). (4.1)
λ Service effort level for providing information service for product 1
w1 Wholesale price for product1 subject to
w2 Wholesale price for product 2
F Cost of handling retuned products for product 2
p1 ≥ w1 ,

p2 > w2 .
price for products 1 and 2, respectively. The parameter αi , i = 1, 2 is the
The manufacturer 1’s profit function can be written as:
market potential for products 1 and 2, β is the product’s price elasticity,
whereas γ represents the cross-price elasticity between two products. 1 2
πM1 = D1 (w1 − c1 ) − hλ . (4.2)
The parameter λ measures the cost of providing information service for 2
product 1 in the physical showroom, and θ is the coefficient of dis­ The manufacturer 2’s profit function can be written as:
playing product 1 in the showroom.
It is observed that the product sale in the online channel is also πM2 = D2 (w2 − c2 ). (4.3)
affected by return policy (Alaei et al., 2020; Huang and Jin, 2020). Based
on this assumption, the retailer could also determine whether to offer a 4.1. Model d
return policy via the online channel to encourage consumers to buy
product 2 if they receive a defective or incorrect product. We investigate This model considers two manufacturers who compete to sell their
the impact of the return policy on the optimal pricing decision. Further, products online in the market through a common retailer. The compe­
it is also assumed that the value of a refund policy in the online channel tition to sell products is called outward (forward) price competition.
is f > 0, and b > 0 is constant (Liu et al., 2017). Therefore, the demand This model presents a decentralized system where the manufacturer
functions of manufacturers in the omnichannel are formulated as maximizes its own profit by determining the corresponding wholesale
follows: price based on the retailer’s reaction function. Given the wholesale price
w1 , λ, and w2 ; the retailer’s reaction function can be derived using the
Manufacturer ​ 1: ​ D1 r = (α1 − βp1 + γ(p2 − p1 − f ) + θλ), (3.3) first-order condition of (4.1)

Manufacturer ​ 2 ​ D2 r = (α2 − βp2 + γ(p1 − λ − p2 ) + bf ). (3.4) p1, p2 ∈ arg maxπR (p1 , p2 |w1 , w2 ). (4.4)
p1, p2

where, Di r , i = 1, 2 and pi , i = 1, 2 are the market demand and per-unit Since πR is concave (the proof is given in Appendix A) and is solved
retail price for products 1 and 2, respectively. The parameter αi , i = 1, 2 by the first-order condition. The value of price can be calculated as:
is the market potential for products 1 and 2, β is the product’s price
elasticity, whereas γ represents the cross-price elasticity between two p1 d =
θλ + 2γp2 + (β + γ)w1 − γw2 + α1
, (4.5)
products. The parameter λ measures the cost of providing information 2(β + γ)

Table 2
Summary of results for different models.
Model w1 w2 p1 p2 λ F πR πM1 πM2 πrm1 πrm2 Total

Decentralized 4.15 4.16 7.10 7.08 0.05 – 17.21 11.65 11.21 – – 40.07
Model rm1 .. 3.49 5.15 6.74 0.07 – – – 7.67 36.29 – 43.96
Model rm2 3.50 6.77 5.15 0.03 – – 8.04 …. – 35.39 43.52
Model r .53 .57 5.11 5.43 0.01 1.15 44.26 1.48 1.32 47.06

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S.K. Jena and P. Meena Journal of Retailing and Consumer Services 65 (2022) 102848

− γλ + 2γp1 − γw1 + (β + γ)w2 + α2 channel competes with manufacturer 2 in terms of setting a wholesale
p2 d = . (4.6) price. This model can be considered as a case of SC competition under
2(β + γ)
omnichannel SC cooperation.
Solving (4.5–4.6) simultaneously, the equilibrium value of p1 and p2 In this case, manufacturer 1 determines an integrated pricing policy
can be determined as follows: of (p1 , λ) for the first channel, in response to the second channel pricing
policy of (w2, p2 ). The profit function of the integrated channel between
− γ2 λ + (β + γ)θλ + β(β + 2γ)w1 + (β + γ)α1 + γα2
p1 d = , (4.7) the retailer and manufacturer 1 is to maximize the total profit and can be
2β(β + 2γ)
written as follows:

p2 d =
− γ(β + γ − θ)λ + β(β + 2γ)w2 + γ α1 + (β + γ)α2
. (4.8) Max πk = πR + πM1 . (4.16)
p1, λ
2β(β + 2γ)
Given the wholesale price w2 , the channel reaction function can be
w1 , λ ∈ arg max πM1 (w1 , λ|p1 , p2 ). (4.9) derived using the first-order condition of (4.16) as
w1

Appendix B proves that πM1 is concave. Using the reaction functions p1 , λ ∈ arg maxπk (p1 , λ|w2 ). (4.17)
p1 ,λ
given in Eqs. (4.7)-(4.8), the manufacturers’ equilibrium wholesale price
and service effort level can be obtained using the first-order condition of As profit function is concave, we use the first-order condition (see
the respective manufacturer’s profit (Eqn. (4.2)). Appendix D) to solve it, and the solution is:

θλ + (β + γ)c1 + γw2 + α1 θλ + (β + γ)c1 + 2γp2 − γw2 + α1

w1 d = , (4.11) p1 rm1 = , (4.18)
2(β + γ) 2(β + γ)

θ(w1 − c1 ) − θc1 + θp1 + γ( − p2 + w2 )

λd = . (4.12) λrm1 = . (4.19)
2h h
Similarly, the optimal value of w2 can be determined from the Given the wholesale price w2 mr1 , we use the first-order condition of
equation (4.3) (4.1) to compute the retailer’s reaction function, and the solution is

− γλ + (β + γ)c2 + γw1 + α2 − γλ − γc1 + 2γp1 + (β + γ)w2 + α2

w2 d = . (4.13) p2 rm1 = . (4.20)
2(β + γ) 2(β + γ)

Solving Eqns. (4.7-4.8, 4.11-4.13) simultaneously, the optimal so­ Solving (4.18-4.20) simultaneously, one can determine the equilib­
* * *
lution of p1 d* p2 d* , w1 d , w2 d and λd (See in Appendix C) can be calcu­ rium value of p1 rm1 , p2 rm1 , and λrm1 as follows:
lated. Finally, manufacturers demand quantity can be formulated as:

( )
− γ 2 (β + γ) + 2hβ(β + 2γ) + 3γ2 θ − 2(β + γ)θ2 c1 + γ( − γ2 + (β + γ)θ)w2 + ( − γ 2 + 2h(β + γ))α1 + γ(2h − θ)α2
p1 rm1 = ( ) , (4.21)
4hβ(β + 2γ) − 2γ(γ − θ)2 − 2β γ2 + θ2

− β(β + 2γ)θc1 + βγ(β + 2γ)w2 + ( − γ 2 + (β + γ)θ)α1 − γ(β + γ − θ)α2

λrm1 = ( ) , (4.22)
2hβ(β + 2γ) − γ(γ − θ)2 − β γ2 + θ2
( ) ( )
γ(β + γ − θ)θc1 + − 2γ2 (β + γ) + 2hβ(β + 2γ) + 3γ2 θ − (β + γ)θ2 w2 + γ(2h − θ)α1 + 2h(β + γ) − θ2 α2
p2 rm1 = ( ) . (4.23)
4hβ(β + 2γ) − 2γ(γ − θ)2 − 2β γ 2 + θ2

* ( * ) Manufacturer 2 considers the channel’s reaction function for its

D1 d* = α1 − βp1 d + γ p2 d − p1 d* + θλd* , (4.14)
wholesale price decisions as
( )
D2 d* = α2 − βp2 d* + γ p1 d* − λd* − p2 d* . (4.15) w2 rm1 ∈ arg max πM2 (w2 |p1 , λ, p2 ). (4.24)
w2

4.2. Model rm1 The optimal value of w2 rm1 is determined from the equation (4.24)

This section studies a problem where manufacturer 1 cooperates

with the retailer to form an integrated channel retailing. This integrated

)
2
γ(2hβ(β + 2γ) + (β + γ − θ)( − γ 2 + (β + γ)θ))c1 + (2hβ(β + γ)(β + 2γ) − (γ2 − (β + γ)θ) c2 + B
w2 rm1 = , (4.25)
4hβ(β + γ)(β + 2γ) − 2(γ2 − (β + γ)θ)2

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S.K. Jena and P. Meena Journal of Retailing and Consumer Services 65 (2022) 102848

where. B = γ(γ 2 − (β + γ)θ)α1 + (2hβ(β + 2γ) + θ(γ2 − (β + γ)θ))α2 . On the other hand, in model rm1, the selling price increases with dis­
Solving Eqns. (4.21), (4.22) and (4.2)3- 4.25) simultaneously, one playing cost factor, when displaying coefficient is less than quadruple
*
can determine the optimal solution for p1 rm1* , p2 rm1* , w2 rm1 and λrm1* . cross-price elasticity. Further, in model rm2, the selling price with dis­
playing cost factor increases if the market size is smaller than the
multiplication of price elasticity and production cost. It is beneficial for
4.3. Model rm2 manufacturer 1 to display products in physical showrooms when model
rm2 market size is smaller than model d. The market size of product 1
This model considers a case where manufacturer 2 collaborates with also depends upon the cross-price elasticity of product 2 and displaying
the online retailer to form a channel-integrated system (q). This inte­ cost coefficient value. It indicates that customers buy more products in
grated channel then competes with manufacturer 1 to determine the omnichannel in the above scenarios than the online channel because of
wholesale price. The profit function for the integrated channel is the bigger market size and customers’ price and quality sensitivity (Alaei
determined as: et al., 2020; Hajdas et al., 2020). In other words, if manufacturer 1 wants
Maxπq = πR + πM2 . (4.26) to attract only price-sensitive customers, then the focus must be on
p2 lowering the displaying cost factor and increasing the market size. Also,
Given the wholesale price w1 , λ, the integrated channel reaction the manufacturer spends more on creating a brand for the customer, and
function can be derived from the first-order condition of (4.26) as as a result, can capture brand-sensitive customers (Wang et al., 2018).
Proposition 2. The rate of change in the retailer’s selling price concerning
p2 ∈ arg maxπq (p2 |w1 , λ). (4.27)
p2 the service effort level to provide product information is one forth under all
three models, when β = θ.
Since the profit function is concave, it can be solved using the first-
order condition (see Appendix E), and the solution is given as Proof: See the Appendix.
Proposition 2 states that the rate of change in the retailer’s selling
(β + γ)c2 + 2γp1 − γ(λ + w1 ) + α2
p2 rm2 = . (4.28) price increases by one-fourth to the service level effort for providing
2(β + γ)
product information through the physical showrooms. In this case, the
Manufacturer 1 considers the channel’s reaction function for the manufacturer spends more on the brand level for capturing brand-
wholesale price decisions. Given the wholesale price w1 , the retailer sensitive customers under TSBO retailing. Further, the retailer and
reaction function can be derived using the first-order condition of (4.1) manufacturer also spend more on displaying the product in the physical
as showrooms and offer better service to improve its quality perception in
customers’ minds (Leek and Christodoulides, 2011; Jena et al., 2017;
θλ − γc2 + 2γp2 + (β + γ)w1 + α1
p1 rm2 = . (4.29) Zhang et al., 2020). Consequently, the manufacturer can sell more
2(β + γ)
products to the retailer at a marginal wholesale price.
Given the selling price , the manufacturer 1 function can be derived
from the first-order condition of (4.26) as
4.4. Model r
w1 , λ ∈ arg max πq (w1 , λ|p1 , p2 ). (4.30)
w1 , λ
In this case, model d is extended by considering the return policy. The
Since the profit function (4.30) is concave, it is solved by the first- model r assumes that the retailer offers a full refund policy for returned
order condition (see Appendix F), and the solution is given as products in their e-channels. The retailer allows returns for products that
θλ + (β + γ)c1 + γc2 + α1 are purchased from online stores. The omnichannel determine the retail
w1 rm2 = , (4.31) price of products that are sold to end customers. The profits of manu­
2(β + γ)
facturer 1, manufacturer 2, and the retailer under product return policy
θ(w1 − c1 ) are formulated below:
λrm2 = . (4.32)
2h The retailer profit can be written as
Solving Eqns. (4.28), (4.29) and (4.31), and 4.32) simultaneously, πR r = D1 r (p1 r − w1 r ) + D2 r ((1 − t)p2 r − w2 r + t(s − f )). (4.33)
rm2 * rm2*
the optimal solution of p1 rm2*
p2 rm2*
, w2 and λ can be determined.
subject to
Proposition 1. In model d, when θ < 4γ and α > cβ , the rate of change of
p1 ≥ w 1 r ,
r
product’s selling price with product displaying cost factor increases and
remain unaffected by the displaying cost factor value. Whereas the rate of p2 r > w 2 r .
change of the product’s selling price with displaying cost factor under model
√̅̅̅
rm1 increases, when 0 < θ < 4(1 + 2)γ and h >0. Further, the rate of Manufacturer 1 profit can be written as
change of product’s selling price with displaying cost factor under model rm2 1 r2
increases, when α < cβ. It is independent of displaying cost factor value. πM1 r = D1 r (w1 r − c1 ) − hλ , (4.34)
2
Proof: See the Appendix. Manufacturer 2 profit can be written as
Proposition 1 states that for model d, the selling price of products
πM2 r = D2 r (w2 r − c2 ). (4.35)
increases with increasing displaying cost when the displaying cost co­
efficient is less than quadruple of cross-price elasticity, and the market Given the wholesale price w1 ,w1 , and λ, the retailer reaction function
size is greater than the product of price elasticity and production cost. can be derived from the first-order condition of (4.33) as

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S.K. Jena and P. Meena Journal of Retailing and Consumer Services 65 (2022) 102848

p1, r p2 r ∈ arg maxπR (p1 r , p2 r |w1 r , w2 r ). (4.36) model d than the integrated model to generate more profit. Withal, when
p1, r p2 r
the retailer and manufacturer integrate to sell products, the retailer sells
The profit function (4.36) is concave and can be solved using the products to consumers with a lower margin to increase the overall
first-order condition (see Appendix G) as: channel profit from the TSBO scheme. The service effort level for
product display in model rm1 is higher than the other three models (see
p1 r =
stγ − f (1 + t)γ + θλ − ( − 2 + t)γp2 + (β + γ)w1 − γw2 + α1
, (4.37) Proposition 3).
2(β + γ) Moreover, the equilibrium displaying effort level is almost distin­
guishable under all three channels—d, rm1, and rm2. In contrast, the
displaying effort is more in the rm1 channel compared to the other three

bf ( − 1 + t) − (f − s)t(β + γ) − ( − 1 + t)γλ + ( − 2 + t)γp1 + γ(w1 − w2 ) − βw2 + ( − 1 + t)α2

p2 r = , (4.38)
2( − 1 + t)(β + γ)

channels. It indicates that the manufacturer who adopts TSBO retailing

puts more effort into selling his products as he collaborates with
customers.
bst + tγλ − γp1 − tγp1 + bp2 − btp2 + tβp2 + tγp2 + γw1 − bw2 − tα2
f= .
2bt
5. Numerical experiment and managerial insights
(4.39)
Solving Eqn. (4.37)-(4.39) simultaneously, the equilibrium value of In this section, a numerical experiment is conducted to illustrate the
p1 r , p2 r , and f can be determined by placing these values in Eqns. (4.34) formulated models’ efficacy. Similar to Alaei et al. (2020) and Huang
and (4.35). The manufacturers’ equilibrium wholesale price and service and Jin (2020), the values of different parameters are considered as.
effort level can be calculated using the first-order conditions of manu­ α1 = 10, α2 = 10,β = 1,γ = 0.5,c1 = 0.2, c2 = 0.3, h = 50, θ = 1, b =
facturers’ profit in Eqn. (4.34)-(4.35) as: 0.5, t = 0.02, and s = 2.

st(b − β − γ)γ + ((1 − 2t)γ2 − bθ + t(b + β + γ)θ)λ + (b − β − γ)γc2 − (γ 2 + b(− 1 + t)(β + γ) + u

w2 r = , (4.40)
2(b − β − γ)γ
( ( )( ) ( ))( ( ) ( ) )( )
− γ 2 + b − 1 + t β + γ + t β2 + 2βγ − γ2 1 − 2t γ2 − bθ + t b + β + γ θ c1 − w1
λr = ( ( ) )( ( ) ) ( ( ) ( ) ) ( ) ) (4.41)
2h(β(b( − 1 + t) + tβ)2 + b − 1 + t + tβ b − 1 + t + 3tβ γ + b − 2 + 3t + β + − 1 + t tβ γ 2 − − 1 + t + t2 γ3
( ( ))
st(b − β − γ)γ + ((1 − 2t)γ2 − bθ + t(b + β + γ)θ)λ + γ2 + b(− 1 + t)(β + γ) + t β2 + 2βγ − γ2 c1 + v
w1 r = 2
. (4.42)
2tβ + 4tβγ − 2( − 1 + t)γ2 + 2b( − 1 + t)(β + γ)

As shown in Table 2, the product’s wholesale price is higher in the

where, u →t(β2 + 2βγ − γ2 ))w1 + (b( − 1 + t) + t(β + γ))α1 + ( − 1 + decentralized channel than the integrated channel. Manufacturer 1
2t)γα2 generates a higher profit under the decentralized channel than manu­
facturer 2 (see Table 2). It indicates that physical showrooms add value
v → γ( − b + β + γ)w2 + (b( − 1 + t) + t(β + γ))α1 + ( − 1 + 2t)γα2
to consumers who purchase products online. The total supply chain
Solving Eqns. (4.37)-(4.42) simultaneously, the optimal solution of profit is higher in the integrated system when the manufacturer co­
p1 r * p2 r *, w1 r * , w2 r * , f and λr * can be determined. operates with the omnichannel retailer without considering the return
policy. This argument is consistent with previous studies (Zhang et al.,
Proposition 3. The ordinal relationship between the products’ optimal 2019; Jiang et al., 2020; Shao 2021) findings. Results also suggest that it
selling prices in all models in an equilibrium condition follows: pd ≥ prm2 > is beneficial for the manufacturer to sell products through collaboration.
prm1 > pr . The ordinal relationship between the service effort level for The product’s selling price in an integrated channel varies between the
providing production information at the physical showroom under all models selling price in the decentralized channel without the return policy and
follows: λrm1 > λd ≥ λrm2 > λr . the decentralized channel with the return policy.
It is also observed that the retailer sells more products in the inte­
Proof: See the Appendix.
grated channel and generates higher profits than other models (See
Proposition 3 indicates that the equilibrium product selling prices
Table 2). This argument is consistent with other studies (Zhang et al.,
are almost in-distinguishable between model d and model rm2. However,
2019; Jiang et al., 2020; Shao 2021). It happens because of the lower
the selling price is higher in model d compared to the other three models.
selling price and more service level effort in the physical showroom. The
When the wholesale price and market size are equal, the selling price is
total profit is substantially high in the model rm1 compared to other
lower in model r than in the other three models. We observed that the
models. It indicates that when two manufacturers compete and choose
selling price is higher in model r than model rm1 under the non-
different sale formats, the manufacturer who embraces omnichannel
equilibrium structure. The manufacturer decides a higher wholesale
retailing gets higher profit because of the lower selling price and higher
product price, and the retailer sells these products at a high margin in
service level effort in displaying products. These insights are similar to

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S.K. Jena and P. Meena Journal of Retailing and Consumer Services 65 (2022) 102848

Fig. 2. Effect of physically displaying products in showrooms under different retailing.

indicate that the total SC profit increases as the displaying cost coeffi­
cient increases in all the channels (See Fig. 2a). These insights are similar
to Zhang et al. (2020), Jiang (2020), and Li et al. (2020). When the
displaying cost of product 1 increases to a specific threshold value (i.e.,
θ = 1.5), the integrated channel’s total profit increases significantly
compared to the decentralized channel. However, the total SC profit is
higher with the return policy than the no return policy. It is due to TSBO
retailing and the return policy having a positive effect on market de­
mand, which increases demand for products 1 and 2. The demand for
product 1 in the integrated channel increases as the market size in­
creases and the selling price decreases, thereby generates more revenue
for the integrated channel than other models. However, when product 1
display cost increases above a specific threshold value, the model rm1
channel’s total profit increases significantly compared to model d and
model rm2. It happens because of the TSBO retailing for product 1.
Further, the consumer perceives to maximize her utility while pur­
chasing the product online. For that, they want to take advantage of the
Fig. 3. Total SC profit for different retailing with different cross-price elasticity return policy and omnichannel retailing while making a purchasing
(γ) values. decision. In the decentralized channel, the total SC profit is lesser due to
double marginalization than the integrated system without a return
Zhang et al. (2020) and Huang and Jin (2020) regarding manufacturers policy. Similarly, the total SC profit in the integrated (model rm1)
should invest more in a physical store to promote omnichannel retailing. channel increases as displaying cost coefficient increases and is higher
However, when one manufacturer is integrated with the retailer, a than the model rm2 channel. In model rm1, the omnichannel retailer sells
combative manufacturer’s profit is lower than that of a decentralized product 2 relatively at a higher price than product 1. As a result, product
channel. 2 demand decreases, whereas it increases for product 1 because of the
Further, results illustrate that the omnichannel SC’s profit is lowest high incentives and low selling price offered to customers.
when the retailer adopts a return policy for the product 2. It is an
exciting finding but contrary to previous studies (Alaei et al., 2020; 5.1.2. Impact of the product information cost factor
Huang et al., 2020; Li et al., 2020) results. It is because when the retailer This section investigates the impact of the product information cost
spends more on the return policy, it decreases her profit. Nevertheless, factor, h, on the total SC profit in four equilibrium channels under price
manufacturers’ profit increases under a competitive environment. competition. The results shown in Fig. 2b reveal that the total SC profit is
Interestingly, our findings contradict Alaei et al. (2020) study and show nearly identical and decreases as the value of cost factor increases in
that retailers should not rely on the return policy alone to increase on­ integrated model rm1 and model rm2. This insight is similar to Jiang’s
line sales. According to the above analysis, the best option for a (2020) work; when the cost factor is higher, the retailer and manufac­
price-sensitive customer is to maintain integrated omnichannel turer reduce the added value of consumers to keep displaying costs
retailing. down. As the value of h increases, the online retailer generates more
profit than manufacturer 1 and manufacturer 2 due to high return effort.
5.1. Sensitivity analyses and managerial insights Thus, the total SC profit is higher in model r than in the other three
models.
In this section, different sensitivity analyses are performed to delve Further, the retailer encourages the consumer to purchase manu­
into the impact of various parameters on models. facturer 2 products due to their return policy to the end-customer. The
retailer believes that consumers buy products online more as they treat
5.1.1. Impact of displaying coefficient them as discount products. However, the profit of the manufacturer
The sensitivity analysis of displaying cost coefficient is conducted to under return policy is lower compared to without return policy.
observe its impact on the total SC profit under all four models. Results Therefore, from both manufacturers’ perspectives, it is best to use model

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S.K. Jena and P. Meena Journal of Retailing and Consumer Services 65 (2022) 102848

rm1 whenever the omnichannel retailer offers TSBO retailing and (similar to Alaei et al., 2020; Hajdas et al., 2020; Zhang et al., 2020).
appropriate products. Further, the total chain profit without considering the return policy
dominates with the return policy in the decentralized model. Never­
5.1.3. Impact of cross-price elasticity theless, the return policy affects the total SC profit more than other
This section investigates the impact of price elasticity, γ, on the total models when displaying coefficient goes above a specific threshold
SC profit for all models. Fig. 3 shows that when cross-price sensitivity value of 1.5.
increases, the total SC profit under no return policy increases, whereas it Today, businesses devote significant resources to reducing their
decreases under return policy. It happens because of the higher return supply chains’ returned costs due to legal, economic, and social pres­
cost and lower service effort. When γ increases after a threshold value of sures. The yield of defective items in online retail poses another chal­
0.9, the total SC profit is lowest in model d channel and is highest in lenge to organizations to restrict competition and increase overall costs.
model rm1 because of omnichannel presence between the players and Based on the results, the operations and logistics manager will likely
costly return policy. Further, we find that price-sensitive customers refuse to take on model r. Thus, the retailer manager should oppose the
prefer to purchase product 1 over manufacturer 2’s product as the cross- manufacturer’s plan for integration and the TSBO business model if the
price rises. Such customers want to keep the basic requirements though integration is not profitable.
they do not have a sufficient budget to purchase the products. As a Some other potential research issues can be studied in the future. For
result, the total SC profit for an integrated model is higher than that of a example, this paper assumes that the omnichannel retailer displays only
decentralized model after a specific threshold value of 0.9. manufacturer1’s product in the physical storerooms. However, in some
cases, omnichannel retailer displays some products in the physical
6. Conclusions and managerial implications showrooms. Therefore, it would be interesting to explore how omni­
channel affects the SC profit when the retailer displays both manufac­
This paper investigates the impact of TSBO and competition retailing turers’ products in the physical showrooms. We focus on online
on total SC profit in a dual manufacturer and single retailer SC. We retailers’ return policy while considering the online information provi­
developed analytical models under omnichannel considering model d, sion exogenous. Therefore, another exciting research problem is to
model rm1, model rm2, and model r channels. We extend the basic model examine the impact of a manufacturer’s return policy on the SC profit.
to simultaneously analyze the impact of omnichannel and online Further, the data used in the numerical experiment is taken from
retailing on total channel profit with and without considering the return previous studies to analyze the efficacy of the models. Therefore,
policy. This paper offers a better understanding of different omnichan­ external validity, i.e., generalization of the results through a case study,
nel retailing being practiced in various industries. remains a limitation. The paper proposes a mathematical model using
Our results indicate that TSBO retailing is beneficial to the SC players return policies under a decentralized channel. However, in some cases,
compared to online retailing. It shows that when two manufacturers omnichannel retailers and manufacturers integrated their efforts for
compete and choose different sales formats, the manufacturer who reducing returns (Alaei et al., 2020; Mandal et al., 2021). Some products
adopts the TSBO retailing enjoys higher profit. The TSBO impacts model are displayed in physical showrooms by an omnichannel retailer.
rm1 more compared to model d. Considering homogenous products, Therefore, it would be fascinating to examine how omnichannel affects
characterized equilibrium outcomes under each retailing show that total the SC profit when a retailer integrates with a manufacturer under re­
profit is highest in model rm1 retailing compared to the other three turn policies. We developed mathematical models to address the re­
models under a competitive environment. The manufacturer spends tailer’s operational decisions considering the product returns in a
more on physical showrooms and wants to sell all the products to competitive environment. However, it would be interesting to develop
maximize profit. hypotheses to test theories related to these research issues and validate
On the other hand, the non-cooperative manufacturer’s profit is them via primary data collection. Finally, considering multiple products
lower in integrated retailing than decentralized retailing when the other and multiple players and analyzing which products should be sold in the
competing manufacturer collaborates with the online retailer. When the marketplace in a competitive environment will be another exciting
service level effort in the physical showroom is constrained, delivering subject to investigate.
online products could bring equilibrium under omnichannel retailing

APPENDIX

Appendix A

⎛ ⎞
∂2 πR ∂π R
⎜ ∂p 2 ( )
⎜ 1 ∂p1 ∂p2 ⎟
⎟ − 2β − 2γ 2γ
H(p1 , p2 ) = ⎜ ⎟= ,
⎝ ∂π R ∂πR ⎠ 2γ − 2β − 2γ
∂p2 ∂p1 ∂p2 2

D1 = ( − 2β − 2γ)2 − 4γ2 > 0 and D2 = − 2β − 2γ < 0.

Here, the Hessian matrix is negative definite. Accordingly, the retailer’s profit function is strictly concave in p1 and p2 .
∂πR ∂πR
= 0 and =0
∂ p1 d ∂p2 d

(γ + θ)λ + 2γp2 + (β + γ)w1 − γw2 + α1

p1 d = , (A1)
2(β + γ)

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S.K. Jena and P. Meena Journal of Retailing and Consumer Services 65 (2022) 102848

− γλ + 2γp1 − γw1 + (β + γ)w2 + α2

p2 d = . (A2)
2(β + γ)

Appendix B

Like Appendix A, here, the Hessian matrix is negative definite.

⎛ 2 ⎞ ⎛ ⎞
∂ πM1 ∂2 πM1 γ+θ
⎜ ∂w 2 ⎟ − β − γ
⎜ 1 ∂w1 ∂λ ⎟ ⎜ 2 ⎟
H(w1 , λ) = ⎜ ⎟=⎜
⎝γ + θ
⎟
⎠
⎝ ∂2 π 2
∂ πM1 ⎠
M1 − h
∂λ ∂w1 ∂λ2 2

( )2
Here, h (β +γ) − γ+θ
2 >0 because h is a large positive number and β > γ. Then − β − γ < 0. Here, the Hessian matrix is negative definite.
Accordingly, the manufacturer’s profit function is strictly concave in w1 and λ.

Appendix C

*
Simultaneously solving the equilibrium value of p1 d p2 d , w1 d , w2 d and λd (See equation 4.7-4.8, 4.11-4.13), the optimal solution of p1 d* p2 d* , w1 d ,
d* d*
w2 and λ can be derived as follows:
( ( )( ( ) ( ) )) (( )( ) )
* 4h(β + γ)2 − γ + θ γ 2β + γ + 2 β + γ θ c1 + 2h β + γ γc2 + 2α1 + γα2
w1 d = , (C1)
2h(2β + γ)(2β + 3γ) − (γ + θ)(2β(γ + θ) + γ(γ + 2θ))
( ) ( )
* γ(2h(β + γ) + (β − θ)(γ + θ))c1 + (β + γ) 4h(β + γ) − (γ + θ)2 c2 − γ( − 2h + γ + θ)α1 − − 4h(β + γ) + (γ + θ)2 α2
w2 d = , (C2)
2h(2β + γ)(2β + 3γ) − (γ + θ)(2β(γ + θ) + γ(γ + 2θ))
(( ) )
d* (γ + θ) 2β2 + 4βγ + γ2 c1 − (β + γ)(γc2 + 2α1 ) − γ α2
λ = , (C3)
− 2h(2β + γ)(2β + 3γ) + (γ + θ)(2β(γ + θ) + γ(γ + 2θ))

*
p1 d = (γ + θ)(γθ + β(γ + θ))c1 ( ( ) ( )( ( ))) ( )( ( )
− + 2((β + γ)α1 + γα2 ) + 2hβ β + 2γ + γ + θ γθ + β γ + θ 4h(β + γ)2 − γ + θ γ 2β + γ
h
( ) )) (( )( ) ))
+2 β + γ θ c1 + 2h β + γ γc2 + 2α1 + γ α2 h(2h(2β + γ)(2β + 3γ) − (γ + θ)(2β(γ + θ) + γ(γ + 2θ)))
(C4)
4β(β + 2γ),
⎛ ( ( ( )( ) ( )( )( )) ⎞
2γ 2hβ β + γ β + 2γ + 3β2 + 6βγ + γ2 β − θ γ + θ c1
1⎝
( ( ( ) ( )( ( ) ( ) )) ( ( 2 2
)
c +γ γ 2hβ β + 2γ + γ + θ − β 3β + 4γ + 2 β + γ θ c − 2 − 2h 5β + 10βγ + 3γ
4 2
( )( )) ) ( ( )( 2
) ( ) ) )⎟
⎟
d* + 3β2 + 6βγ + γ2 γ + θ α1 − 2 − 6h β + γ 2β2 + 4βγ + γ 2 + 3β2 + 6βγ + γ2 (γ + θ)2 α2 ⎟
p2 = ⎟.
⎟ (C5)
(β(β + 2γ)(2h(2β + γ)(2β + 3γ) − (γ + θ)(2β(γ + θ) + γ(γ + 2θ)))) ⎟
⎠

Appendix D

⎛ ⎞
∂2 πk ∂2 πk ∂2 πk
⎜ ∂p1 ∂p2 ⎟
⎜ ∂ p1 2 ∂p1 ∂λ ⎟
⎜ ⎟ ⎛ ⎞
⎜ 2 ⎟ − 2β − 2γ γ+θ 2γ
⎜ ∂ πk ∂2 πk ∂2 πk ⎟ ⎝ ⎠.
H(p1 , p2 , λ) = ⎜ ⎟= γ + θ − h − γ
⎜ ∂λ ∂p1
⎜ ∂λ2 ∂λ ∂p2 ⎟
⎟ 2γ − γ − 2β − 2γ
⎜ 2 ⎟
⎝ ∂ πk ∂2 πk ∂2 πk ⎠
∂p2 ∂p1 ∂p2 ∂λ ∂p2 2
Like Appendix A, here, the Hessian matrix is negative definite. Accordingly, the manufacturer’s profit function is strictly concave in p1 , p2 , and λ.

Appendix E

⎛ ⎞
∂2 π q ∂πq
⎜ ∂p 2 ( )
⎜ 1 ∂p1 ∂p2 ⎟
⎟ − 2β − 2γ 2γ
H(p1 , p2 ) = ⎜ ⎟= .
⎝ ∂πq ∂πq ⎠ 2γ − 2β − 2γ
∂p2 ∂p1 ∂ p2 2

12
S.K. Jena and P. Meena Journal of Retailing and Consumer Services 65 (2022) 102848

Like Appendix A, here, the Hessian matrix is negative definite. Accordingly, the manufacturer’s profit function is strictly concave in. p1 , p2 , and λ
Appendix F

⎛ ⎞
∂2 π q ∂π q
⎜ ∂w 2 ( )
⎜ ∂w1 ∂λ ⎟
⎟ − β− γ 0
H(w1 , λ) = ⎜ 1 ⎟= > 0.
⎝ ∂πq ∂πq ⎠ 0 − h
∂λ ∂w1 ∂λ2

D1 = ( − β − γ)( − h) − 0 > 0 and D2 = − β − γ < 0.

Here, the Hessian matrix is negative definite. Hence the profit function is concave.
Proposition 1.
For model d
( )
∂p 4(α − cβ) 16γ2 + 8γθ − 3θ2
=( > 0, as α > β.
∂h 16hβ + 16γ2 + 16γθ + 3θ2 )2

When 4(α − cβ)(4γ − θ)(4γ + 3θ) > 0, as γ > 0 && 0 < θ

That means when θ < 4γ and α > cβ and independent of h value.
For model rm1
( )( ( )
∂p 1 4 1 16 1
= α − cβ − + + hβ − ( ) − > 0,
∂h 4 − 4hβ + θ2 hβ + 2γ(2γ + θ) − 4hβ + θ2
2
(hβ + 2γ(2γ + θ))2
√̅̅̅
When α > cβ&& 0 < θ < 4(1 + 2)γ and h > 0.
For model rm2
∂p 2(α − cβ)(4γ + 3θ)(4γ + 5θ)
∂h
=− ( )2 > 0.
− 8hβ + (4γ + 3θ)2

When − 2(α − cβ)(4γ + 3θ)(4γ + 5θ) > 0, γ > 0 && 0 < θ

It happens when α < cβ and is independent of the h value.
Proposition 2.
For model d
∂pd ∂prm1 ∂prm2 θ
= = = > ​ 0, ​ as ​ β > 0 && 0 < θ ,
∂λ ∂λ ∂λ 4β
∂pd ∂prm1 ∂prm2
When θ = β, ∂λ = ∂λ = ∂λ = 14.

Appendix G. can be derived like Appendix A

Proposition 3
1 2θ + ( − γ + θ) + c(γ + θ)
pd − prm1 = ( − c + α) ​ > ​ 0, ​ when ​ α ​ > ​ c, λrm1 − λd = ​ > ​ 0, ​ as ​ w ​ > ​ c
2 2h

(γ − θ) + 2α θ − c(γ + θ) 2α + β + θλ
λrm1 − λrm2 = > 0, ​ as, λrm2 − λr = > 0,
2h 4β

(c − α)(2γ + θ) 1
λd − λrm2 = − ≥ 0, as, prm1 − prm2 = (c − α) < 0,
4h 2

(1 + t)γ + 2γ − θ
pd − prm2 ≥ 0. prm1 − pr = > 0.
2(β + γ)

13
S.K. Jena and P. Meena Journal of Retailing and Consumer Services 65 (2022) 102848

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