Try-Before-You-Buy (TBYB): Online Retailing Strategy with Customer Self-Mending
by
Giri Kumar Tayi
Friday, February 23, 2018
10:30 AM – noon
Speakman Hall Suite 200
Abstract
In this study, we develop a parsimonious model to investigate the Try-Before-You-Buy (TBYB) strategy for an online retailer considering customer self-mending (CSM) behaviors. Our findings show that CSM behaviors have a great impact on the TBYB strategy. Without CSM, we find that the retailer offers no price discount under TBYB strategy. Nevertheless, TBYB strategy works as a Pareto improvement mechanism, even a “win-win” strategy for the society. With CSM, the results are quite different and thus interesting. First, we find the retailer’s offering of price discount in TBYB strategy is impacted by the product value, the return hassle cost as well as the size of the member segment. Second, we find the retailer’s adoption of TBYB strategy critically depends on the operation/return handling cost, product value, and the size of member segments. Specifically, the TBYB strategy is viable if: 1) the operation/return handling cost is low enough; or 2) the operation/return handling cost is relatively high, but the product value is large enough; or 3) although the operation/return handling cost is relatively high, and the product value is relatively small, the size of member segment is large enough. Third, we find the TBYB strategy reduces customer surplus on average, but it increases social welfare under some conditions. In addition, based on a generalized model, we find the price discount structure is additionally affected by the product mix and the number of products members keep in TBYB strategy. Further, we find that the TBYB strategy is also a “win-win” strategy in a competitive market setting. Such findings offer guidelines for online retailers that encounter problems related to product fit uncertainty to design appropriate TBYB strategies.