Implementing market segmentation using full-refund and no-refund customer returns policies in a dual-channel supply chain structure

Products returned by customers are common in the retail industry and result in costs to both the supplier and the retailer. In practice, retailers implement returns policies that may give customers a full, partial, or no refund for returned products. In this paper, we examine how a firm that faces customer returns can enhance profit by using different customer returns policies, full‐refund and no‐returns, as a device to segment its market into a dual‐channel structure. We also show the impact of customer returns on the firm's pricing and ordering decisions, as well as on the firm's profit in such a dual‐channel structure.