PRICING, SALES-EFFORT AND REWARD OFFERING STRATEGY IN A CLOSED LOOP DUAL CHANNEL SUPPLY CHAIN WITH CUSTOMER'S FREE RIDING BEHAVIOR AND RETURN-REFUND POLICY

Abstract

Over the years, manufacturing industries have evolved due to growing environmental awareness, resource scarcity, and, more recently, shifts in purchasing behavior driven by internet-enabled technologies. These factors have contributed to the rise of Closed-Loop Dual-Channel Supply Chains (CLDSCs). Additionally, challenges such as Free-Riding Behavior (FRB)—where consumers utilize offline services but make purchases online and generous return-refund policies have further complicated supply chain coordination and profitability.

In this research, we develop a Closed-Loop Dual-Channel Supply Chain (CLDSC) consisting of an offline retail channel and an online direct channel incorporating both FRB and a full refund return policy. In this model, the manufacturer acquires used products from customers for remanufacturing by offering a monetary reward. The core objective of this study is to evaluate optimal strategies for pricing, sales effort, and reward levels under two scenarios: a decentralized scenario and a centralized scenario. A numerical analysis with sensitivity investigations is also conducted to examine how increasing return rates impact coordination and profitability, and how FRB should guide strategic adjustments to enhance overall system efficiency.