DATA-DRIVEN ESSAYS: ROLE OF PRICING AND RETURNS

Abstract

In this dissertation, we identify leavers in retailers’ operations such as their shipping policy design as well as markdown strategy which can significantly impact their product returns and the costs associated with it. We study how a high free shipping thresholds can induce shoppers to place orders with an intention to return a part of the order later. Using an empirical approach, which exploits natural experiments, we confirm that high threshold and/or high shipping fees induce a substantial order padding behavior, which leads to lower sales revenue, after adjusting for returns. However, we find that such behavior can be largely alleviated with frictions to returns. We propose that retailers looking to design their shipping policy should correctly account for return environment features. We also explore the link between a retailer’s markdown pricing strategies and its impact on customers’ purchase and return behavior. We specifically study the distinction between regular price markdowns and bundle price markdowns and the key contributors to such distinctions, and how they contribute to sales and customers’ return behavior. Capturing this notion and the heterogeneous impact of bundle and regular discounts on merchandise with different substitutability or complementarity as well as correlation between items at return stage, we offer recommendations on how a retailer should approach the design of their markdown strategies.