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- Title
The Informational Role of Manufacturer Returns Policies: How They Can Help in Learning the Demand.
- Authors
Sarvary, Miklos; Padmanabhan, V.
- Abstract
Returns policies are usually thought of as being a way to insure retailers against excess inventory. The work of Pellegrini (1986), Chu (1993), Lin (1993) and Padrnanabhan and Png (1997) highlights the fact that there is considerably more to returns policies than just a mechanism for insurance. Our work identifies a heretofore undocumented rationale for returns policy: its role in learning the demand for a new product. The model of manufacturer-retailer interaction assumes that the demand is uncertain but correlated across time periods. Thus, its true nature is revealed over time via the realization of sales. The speed of such learning depends on the size of the inventory at the retail level which in turn can be strategically influenced by the manufacturer through a returns policy. In such environments, we show that a returns policy may be a way for the manufacturer to learn the demand of a new product.
- Subjects
MANUFACTURED products; RETAIL industry; MARKETING; INDUSTRIAL life insurance; SALES promotion; SUPPLY &; demand
- Publication
Marketing Letters, 2001, Vol 12, Issue 4, p341
- ISSN
0923-0645
- Publication type
Article
- DOI
10.1023/A:1012224422616