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Open AccessOpen Access JUSTC Management 04 August 2022

Fresh product e-tailer’s optimal fresh-keeping strategy under three scenarios

  • School of Management, University of Science and Technology of China, Hefei 230026, China

Cite this:
https://doi.org/10.52396/JUSTC-2022-0018
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  • Author Bio:

    Qiufang Huang received her master’s degree in Management Science and Engineering from the University of Science and Technology of China in 2022. During the master’s degree, she mainly focuses on supply chain management

    Yaqin Hu currently is a Ph.D. student in Management Science and Engineering at the University of Science and Technology of China. Her research mainly focuses on supply chain management

  • Corresponding author: E-mail: hyq7960@mail.ustc.edu.cn
  • Received Date: 21 January 2022
  • Accepted Date: 20 March 2022
    • Available Online: 04 August 2022
    Abstract

  • Abstract

    In the direct sales model, the e-tailers sell fresh products to consumers in the online market and promise consumers a full-refund policy without return. Consumers are always concerned the products’ freshness level before purchasing online fresh products. Third-party logistics (3PL) providers will be motivated to exert a fresh-keeping effort to keep the fresh product at the optimum level when offering consumers or e-tailers fresh-keeping services. Considering the fresh-keeping service provided by 3PL providers, to alleviate consumers’ concerns about the freshness level and encourage them to purchase fresh products, some e-tailers will purchase fresh-keeping services from 3PL providers and offer them to consumers for free. However, some e-tailers have stopped offering the free service; they have offered consumers the opportunity to purchase fresh-keeping services. To explore an e-tailer’s optimal fresh-keeping strategy, we consider a market consisting of an e-tailer and a 3PL provider. Three alternative scenarios are discussed, scenario N: no fresh-keeping service; scenario C: some consumers voluntarily purchase fresh-keeping services; and scenario S: the e-tailer offers a complementary fresh-keeping service. We find that introducing a fresh-keeping service increases the retail price in scenario C when the coefficient of fresh-keeping cost is high and the unit fresh-keeping service fee is low, but that decreases in scenario S when the unit fresh-keeping service fee is low. Comparing the e-tailer’s equilibrium profits, we find that introducing a fresh-keeping service does not necessarily benefit the e-tailer. The coefficients of fresh-keeping costs and unit fresh-keeping service fees play a critical role in selecting the fresh-keeping strategy. Meanwhile, the 3PL provider is biased; specifically, the 3PL provider’s fresh-keeping effort is related to that of the policyholder.

    Graphical abstract

    Abstract

    In the direct sales model, the e-tailers sell fresh products to consumers in the online market and promise consumers a full-refund policy without return. Consumers are always concerned the products’ freshness level before purchasing online fresh products. Third-party logistics (3PL) providers will be motivated to exert a fresh-keeping effort to keep the fresh product at the optimum level when offering consumers or e-tailers fresh-keeping services. Considering the fresh-keeping service provided by 3PL providers, to alleviate consumers’ concerns about the freshness level and encourage them to purchase fresh products, some e-tailers will purchase fresh-keeping services from 3PL providers and offer them to consumers for free. However, some e-tailers have stopped offering the free service; they have offered consumers the opportunity to purchase fresh-keeping services. To explore an e-tailer’s optimal fresh-keeping strategy, we consider a market consisting of an e-tailer and a 3PL provider. Three alternative scenarios are discussed, scenario N: no fresh-keeping service; scenario C: some consumers voluntarily purchase fresh-keeping services; and scenario S: the e-tailer offers a complementary fresh-keeping service. We find that introducing a fresh-keeping service increases the retail price in scenario C when the coefficient of fresh-keeping cost is high and the unit fresh-keeping service fee is low, but that decreases in scenario S when the unit fresh-keeping service fee is low. Comparing the e-tailer’s equilibrium profits, we find that introducing a fresh-keeping service does not necessarily benefit the e-tailer. The coefficients of fresh-keeping costs and unit fresh-keeping service fees play a critical role in selecting the fresh-keeping strategy. Meanwhile, the 3PL provider is biased; specifically, the 3PL provider’s fresh-keeping effort is related to that of the policyholder.

    • Public Summary

    • Investigate the e-tailer’s fresh-keeping strategy in a context fresh-keeping service which is open to the e-tailer and consumers.
    • Obtain the conditions of the e-tailer’s optimal fresh-keeping strategy and find that it relates to the coefficient of fresh-keeping cost and the unit fresh-keeping service fee.
    • Study the influence of different policyholders of fresh-keeping services on 3PL providers’ fresh-keeping efforts.

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    • References(36)
  • [1]
    Gu B, Fu Y, Li Y. Fresh-keeping effort and channel performance in a fresh product supply chain with loss-averse consumers’ returns. Mathematical Problems in Engineering, 2018: 4717094. doi: https://doi.org/10.1155/2018/4717094
    [2]
    Wu Q, Mu Y, Feng Y. Coordinating contracts for fresh product outsourcing logistics channels with power structures. International Journal of Production Economics, 2015, 160: 94–105. doi: 10.1016/j.ijpe.2014.10.007
    [3]
    Liu M, Dan B, Zhang S, et al. Information sharing in an E-tailing supply chain for fresh produce with freshness-keeping effort and value-added service. European Journal of Operational Research, 2021, 290 (2): 572–584. doi: 10.1016/j.ejor.2020.08.026
    [4]
    Wang M, Zhao L. Cold chain investment and pricing decisions in a fresh food supply chain. International Transactions in Operational Research, 2021, 28 (2): 1074–1097. doi: 10.1111/itor.12564
    [5]
    Hong Y, Pavlou P A. Product fit uncertainty in online markets: Nature, effects, and antecedents. Information Systems Research, 2014, 25 (2): 328–344. doi: 10.1287/isre.2014.0520
    [6]
    Hsiao L, Chen Y J. Retailer’s rationale to refuse consumer returns in supply chains. Naval Research Logistics, 2015, 62 (8): 686–701. doi: 10.1002/nav.21673
    [7]
    Chesnokova T. Return policies, market outcomes, and consumer welfare. Canadian Journal of Economics, 2007, 40 (1): 296–316. doi: https://doi.org/10.1111/j.1365-2966.2007.00409.x
    [8]
    Lin J, Zhang J, Cheng T C E. Optimal pricing and return policy and the value of freight insurance for a retailer facing heterogeneous consumers with uncertain product values. International Journal of Production Economics, 2020, 229: 107767. doi: 10.1016/j.ijpe.2020.107767
    [9]
    Geng S, Li W, Qu X, et al. Design for the pricing strategy of return-freight insurance based on online product reviews. Electronic Commerce Research and Applications, 2017, 25: 16–28. doi: 10.1016/j.elerap.2017.05.001
    [10]
    Li Y, Li G, Tayi G K, et al. Return shipping insurance: Free versus for-a-fee? International Journal of Production Economics, 2021, 235: 108110. doi: 10.1016/j.ijpe.2021.108110
    [11]
    Fan Z P, Chen Z. When should the e-tailer offer complimentary return-freight insurance? International Journal of Production Economics, 2020, 230: 107890. doi: 10.1016/j.ijpe.2020.107890
    [12]
    Chen Z, Fan Z P, Zhao X. Offering return-freight insurance or not: Strategic analysis of an e-seller’s decisions. Omega, 2021, 103: 102447. doi: 10.1016/j.omega.2021.102447
    [13]
    Ren M, Liu J, Feng S, et al. Pricing and return strategy of online retailers based on return insurance. Journal of Retailing and Consumer Services, 2021, 59: 102350. doi: 10.1016/j.jretconser.2020.102350
    [14]
    Li Y, Li G, Cheng T C E. Return freight insurance: Implications for online platforms, third-party retailers and consumers. In: 2018 8th International Conference on Logistics, Informatics and Service Sciences (LISS). Toronto, Canada: IEEE, 2018: 1–6.
    [15]
    Zhao X, Hu S, Meng X. Who should pay for return freight in the online retailing? Retailers or consumers. Electronic Commerce Research, 2020, 20 (2): 427–452. doi: 10.1007/s10660-019-09360-9
    [16]
    Gu Z J, Tayi G K. Consumer mending and online retailer fit-uncertainty mitigating strategies. Quantitative Marketing and Economics, 2015, 13 (3): 251–282. doi: 10.1007/s11129-015-9161-2
    [17]
    Chen J, Grewal R. Competing in a supply chain via full-refund and no-refund customer returns policies. International Journal of Production Economics, 2013, 146 (1): 246–258. doi: 10.1016/j.ijpe.2013.07.005
    [18]
    Su X. Consumer returns policies and supply chain performance. Manufacturing & Service Operations Management, 2009, 11 (4): 595–612. doi: https://doi.org/10.1287/msom.1080.0240
    [19]
    Pei Z, Paswan A, Yan R. E-tailer’s return policy, consumer’s perception of return policy fairness and purchase intention. Journal of Retailing and Consumer Services, 2014, 21 (3): 249–257. doi: 10.1016/j.jretconser.2014.01.004
    [20]
    Akçay Y, Boyacı T, Zhang D. Selling with money-back guarantees: The impact on prices, quantities, and retail profitability. Production and Operations Management, 2013, 22 (4): 777–791. doi: 10.1111/j.1937-5956.2012.01394.x
    [21]
    Chen J, Bell P C. Implementing market segmentation using full-refund and no-refund customer returns policies in a dual-channel supply chain structure. International Journal of Production Economics, 2012, 136 (1): 56–66. doi: 10.1016/j.ijpe.2011.09.009
    [22]
    Ohmura S, Matsuo H. The effect of risk aversion on distribution channel contracts: Implications for return policies. International Journal of Production Economics, 2016, 176: 29–40. doi: 10.1016/j.ijpe.2016.02.019
    [23]
    Bower A B, Maxham III J G. Return shipping policies of online retailers: Normative assumptions and the long-term consequences of fee and free returns. Journal of Marketing, 2012, 76 (5): 110–124. doi: 10.1509/jm.10.0419
    [24]
    Ferguson M, Guide Jr V D R, Souza G C. Supply chain coordination for false failure returns. Manufacturing & Service Operations Management, 2006, 8 (4): 376–393. doi: https://doi.org/10.1287/msom.1060.0112
    [25]
    Cai X, Chen J, Xiao Y, et al. Optimization and coordination of fresh product supply chains with freshness-keeping effort. Production and Operations management, 2010, 19 (3): 261–278. doi: https://doi.org/10.1111/j.1937-5956.2009.01096.x
    [26]
    Liu C, Chen W, Zhou Q, et al. Modelling dynamic freshness-keeping effort over a finite time horizon in a two-echelon online fresh product supply chain. European Journal of Operational Research, 2021, 293 (2): 511–528. doi: 10.1016/j.ejor.2020.12.035
    [27]
    Wang G, Ding P, Chen H, et al. Green fresh product cost sharing contracts considering freshness-keeping effort. Soft Computing, 2020, 24 (4): 2671–2691. doi: 10.1007/s00500-019-03828-4
    [28]
    Yang L, Tang R. Comparisons of sales modes for a fresh product supply chain with freshness-keeping effort. Transportation Research Part E:Logistics and Transportation Review, 2019, 125: 425–448. doi: 10.1016/j.tre.2019.03.020
    [29]
    Yu Y, Xiao T. Pricing and cold-chain service level decisions in a fresh agri-products supply chain with logistics outsourcing. Computers & Industrial Engineering, 2017, 111: 56–66. doi: https://doi.org/10.1016/j.cie.2017.07.001
    [30]
    Zheng Q, Ieromonachou P, Fan T, et al. Supply chain contracting coordination for fresh products with fresh-keeping effort. Industrial Management & Data Systems, 2017, 117 (3): 538–559. doi: DOI:10.1108/IMDS-04-2016-0139
    [31]
    Gu B, Fu Y, Ye J. Joint optimization and coordination of fresh-product supply chains with quality-improvement effort and fresh-keeping effort. Quality Technology & Quantitative Management, 2021, 18 (1): 20–38. doi: https://doi.org/10.1080/16843703.2020.1748260
    [32]
    Shen B, Xu X, Guo S. The impacts of logistics services on short life cycle products in a global supply chain. Transportation Research Part E:Logistics and Transportation Review, 2019, 131: 153–167. doi: 10.1016/j.tre.2019.07.013
    [33]
    Cai X, Chen J, Xiao Y, et al. Fresh-product supply chain management with logistics outsourcing. Omega, 2013, 41 (4): 752–765. doi: 10.1016/j.omega.2012.09.004
    [34]
    Banker R D, Khosla I, Sinha K K. Quality and competition. Management Science, 1998, 44 (9): 1179–1192. doi: 10.1287/mnsc.44.9.1179
    [35]
    Xie G, Yue W, Wang S, et al. Quality investment and price decision in a risk-averse supply chain. European Journal of Operational Research, 2011, 214 (2): 403–410. doi: 10.1016/j.ejor.2011.04.036
    [36]
    Liu Z, Anderson T D, Cruz J M. Consumer environmental awareness and competition in two-stage supply chains. European Journal of Operational Research, 2012, 218 (3): 602–613. doi: 10.1016/j.ejor.2011.11.027
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    Figure  1.  The introduction of “Youxian Song” launched by Zhongtong Express.

    Figure  2.  The flow of money in three scenarios.

    Figure  3.  E-tailer’s fresh-keeping strategy.

    [1]
    Gu B, Fu Y, Li Y. Fresh-keeping effort and channel performance in a fresh product supply chain with loss-averse consumers’ returns. Mathematical Problems in Engineering, 2018: 4717094. doi: https://doi.org/10.1155/2018/4717094
    [2]
    Wu Q, Mu Y, Feng Y. Coordinating contracts for fresh product outsourcing logistics channels with power structures. International Journal of Production Economics, 2015, 160: 94–105. doi: 10.1016/j.ijpe.2014.10.007
    [3]
    Liu M, Dan B, Zhang S, et al. Information sharing in an E-tailing supply chain for fresh produce with freshness-keeping effort and value-added service. European Journal of Operational Research, 2021, 290 (2): 572–584. doi: 10.1016/j.ejor.2020.08.026
    [4]
    Wang M, Zhao L. Cold chain investment and pricing decisions in a fresh food supply chain. International Transactions in Operational Research, 2021, 28 (2): 1074–1097. doi: 10.1111/itor.12564
    [5]
    Hong Y, Pavlou P A. Product fit uncertainty in online markets: Nature, effects, and antecedents. Information Systems Research, 2014, 25 (2): 328–344. doi: 10.1287/isre.2014.0520
    [6]
    Hsiao L, Chen Y J. Retailer’s rationale to refuse consumer returns in supply chains. Naval Research Logistics, 2015, 62 (8): 686–701. doi: 10.1002/nav.21673
    [7]
    Chesnokova T. Return policies, market outcomes, and consumer welfare. Canadian Journal of Economics, 2007, 40 (1): 296–316. doi: https://doi.org/10.1111/j.1365-2966.2007.00409.x
    [8]
    Lin J, Zhang J, Cheng T C E. Optimal pricing and return policy and the value of freight insurance for a retailer facing heterogeneous consumers with uncertain product values. International Journal of Production Economics, 2020, 229: 107767. doi: 10.1016/j.ijpe.2020.107767
    [9]
    Geng S, Li W, Qu X, et al. Design for the pricing strategy of return-freight insurance based on online product reviews. Electronic Commerce Research and Applications, 2017, 25: 16–28. doi: 10.1016/j.elerap.2017.05.001
    [10]
    Li Y, Li G, Tayi G K, et al. Return shipping insurance: Free versus for-a-fee? International Journal of Production Economics, 2021, 235: 108110. doi: 10.1016/j.ijpe.2021.108110
    [11]
    Fan Z P, Chen Z. When should the e-tailer offer complimentary return-freight insurance? International Journal of Production Economics, 2020, 230: 107890. doi: 10.1016/j.ijpe.2020.107890
    [12]
    Chen Z, Fan Z P, Zhao X. Offering return-freight insurance or not: Strategic analysis of an e-seller’s decisions. Omega, 2021, 103: 102447. doi: 10.1016/j.omega.2021.102447
    [13]
    Ren M, Liu J, Feng S, et al. Pricing and return strategy of online retailers based on return insurance. Journal of Retailing and Consumer Services, 2021, 59: 102350. doi: 10.1016/j.jretconser.2020.102350
    [14]
    Li Y, Li G, Cheng T C E. Return freight insurance: Implications for online platforms, third-party retailers and consumers. In: 2018 8th International Conference on Logistics, Informatics and Service Sciences (LISS). Toronto, Canada: IEEE, 2018: 1–6.
    [15]
    Zhao X, Hu S, Meng X. Who should pay for return freight in the online retailing? Retailers or consumers. Electronic Commerce Research, 2020, 20 (2): 427–452. doi: 10.1007/s10660-019-09360-9
    [16]
    Gu Z J, Tayi G K. Consumer mending and online retailer fit-uncertainty mitigating strategies. Quantitative Marketing and Economics, 2015, 13 (3): 251–282. doi: 10.1007/s11129-015-9161-2
    [17]
    Chen J, Grewal R. Competing in a supply chain via full-refund and no-refund customer returns policies. International Journal of Production Economics, 2013, 146 (1): 246–258. doi: 10.1016/j.ijpe.2013.07.005
    [18]
    Su X. Consumer returns policies and supply chain performance. Manufacturing & Service Operations Management, 2009, 11 (4): 595–612. doi: https://doi.org/10.1287/msom.1080.0240
    [19]
    Pei Z, Paswan A, Yan R. E-tailer’s return policy, consumer’s perception of return policy fairness and purchase intention. Journal of Retailing and Consumer Services, 2014, 21 (3): 249–257. doi: 10.1016/j.jretconser.2014.01.004
    [20]
    Akçay Y, Boyacı T, Zhang D. Selling with money-back guarantees: The impact on prices, quantities, and retail profitability. Production and Operations Management, 2013, 22 (4): 777–791. doi: 10.1111/j.1937-5956.2012.01394.x
    [21]
    Chen J, Bell P C. Implementing market segmentation using full-refund and no-refund customer returns policies in a dual-channel supply chain structure. International Journal of Production Economics, 2012, 136 (1): 56–66. doi: 10.1016/j.ijpe.2011.09.009
    [22]
    Ohmura S, Matsuo H. The effect of risk aversion on distribution channel contracts: Implications for return policies. International Journal of Production Economics, 2016, 176: 29–40. doi: 10.1016/j.ijpe.2016.02.019
    [23]
    Bower A B, Maxham III J G. Return shipping policies of online retailers: Normative assumptions and the long-term consequences of fee and free returns. Journal of Marketing, 2012, 76 (5): 110–124. doi: 10.1509/jm.10.0419
    [24]
    Ferguson M, Guide Jr V D R, Souza G C. Supply chain coordination for false failure returns. Manufacturing & Service Operations Management, 2006, 8 (4): 376–393. doi: https://doi.org/10.1287/msom.1060.0112
    [25]
    Cai X, Chen J, Xiao Y, et al. Optimization and coordination of fresh product supply chains with freshness-keeping effort. Production and Operations management, 2010, 19 (3): 261–278. doi: https://doi.org/10.1111/j.1937-5956.2009.01096.x
    [26]
    Liu C, Chen W, Zhou Q, et al. Modelling dynamic freshness-keeping effort over a finite time horizon in a two-echelon online fresh product supply chain. European Journal of Operational Research, 2021, 293 (2): 511–528. doi: 10.1016/j.ejor.2020.12.035
    [27]
    Wang G, Ding P, Chen H, et al. Green fresh product cost sharing contracts considering freshness-keeping effort. Soft Computing, 2020, 24 (4): 2671–2691. doi: 10.1007/s00500-019-03828-4
    [28]
    Yang L, Tang R. Comparisons of sales modes for a fresh product supply chain with freshness-keeping effort. Transportation Research Part E:Logistics and Transportation Review, 2019, 125: 425–448. doi: 10.1016/j.tre.2019.03.020
    [29]
    Yu Y, Xiao T. Pricing and cold-chain service level decisions in a fresh agri-products supply chain with logistics outsourcing. Computers & Industrial Engineering, 2017, 111: 56–66. doi: https://doi.org/10.1016/j.cie.2017.07.001
    [30]
    Zheng Q, Ieromonachou P, Fan T, et al. Supply chain contracting coordination for fresh products with fresh-keeping effort. Industrial Management & Data Systems, 2017, 117 (3): 538–559. doi: DOI:10.1108/IMDS-04-2016-0139
    [31]
    Gu B, Fu Y, Ye J. Joint optimization and coordination of fresh-product supply chains with quality-improvement effort and fresh-keeping effort. Quality Technology & Quantitative Management, 2021, 18 (1): 20–38. doi: https://doi.org/10.1080/16843703.2020.1748260
    [32]
    Shen B, Xu X, Guo S. The impacts of logistics services on short life cycle products in a global supply chain. Transportation Research Part E:Logistics and Transportation Review, 2019, 131: 153–167. doi: 10.1016/j.tre.2019.07.013
    [33]
    Cai X, Chen J, Xiao Y, et al. Fresh-product supply chain management with logistics outsourcing. Omega, 2013, 41 (4): 752–765. doi: 10.1016/j.omega.2012.09.004
    [34]
    Banker R D, Khosla I, Sinha K K. Quality and competition. Management Science, 1998, 44 (9): 1179–1192. doi: 10.1287/mnsc.44.9.1179
    [35]
    Xie G, Yue W, Wang S, et al. Quality investment and price decision in a risk-averse supply chain. European Journal of Operational Research, 2011, 214 (2): 403–410. doi: 10.1016/j.ejor.2011.04.036
    [36]
    Liu Z, Anderson T D, Cruz J M. Consumer environmental awareness and competition in two-stage supply chains. European Journal of Operational Research, 2012, 218 (3): 602–613. doi: 10.1016/j.ejor.2011.11.027
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