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| Author: | Heiman, A. (et al.) |
| Title: | Valuation and management of money-back guarantee options |
| Journal: | Journal of Retailing
2002 : FALL, VOL. 78:3, p. 193-205 |
| Index terms: | Consumer research Options Retailing Product policy Econometric models |
| Language: | eng |
| Abstract: | The authors model money-back guarantees as put options. This use of option theory provides retailers with a framework to optimize the price and the return option independently and under various market conditions. This separation of product price and option value enables retailers to offer an unbundled MBG policy, that is, to allow the customer to choose whether to purchase an MBG option with the product or to buy the product fit and with the opportunity to test the product before purchase, and positively correlated with price and contract duration. Simulation of the model reveals that when customers are highly heterogenous in their product valuation and probability of need-fit, and if return costs are low, an unbundled MBG policy is optimal. |
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