Researchers introduce a new concept to handle online returns

Associate Professor Wilco van den Heuvel and Professor Rommert Dekker, both affiliated with the Econometric Institute, took further scientific development and publication that is based on a concept idea of former econometrics student Eline Tetteroo. During a graduation internship at Bearing Point, Eline developed a concept called C2C (customer to customer), together with her supervisor, Carl van Heijst, to reduce the number of shipments during e-commerce returns.

Returning items straight to the next customer 

In a recent published paper, Van de Heuvel and Dekker - together with former colleague Sena Eruguz and Oktay Karabağ (now in Turkey) - introduce a new concept to handle online returns, the customer-to-customer (C2C) return logistics. The idea behind the C2C concept is to deliver returning items straight to the next customer, skipping retailers’ warehouse. To incentivise customers to purchase C2C returning items, retailers can promote returning items on their website with a discount.

Under the C2C return programme, when returning an item, customers are asked to keep the returning item for a few more days. During those days the item is promoted on the retailer’s website with a discount and the corresponding saving in the CO2 emission. When the item is sold, the returning customer gets a notification to ship the package. Payments and refunds are handled by the online retailer or by an external operator. A provided quick response (QR) label links the returning customer to the new customer. The new customer inspects the item upon reception, scans the product’s QR label on the package, and gives a review of the item. The review is added to the profile of the returning customer where it contributes to his/her reputation.

The researchers show the mathematical models behind the C2C concept to determine how much discount to offer, ensuring that enough customers are triggered to purchase C2C returning items and the expected total profit of the retailer is maximised. The researcher’s first model, the base model (BM), is a customer-based formulation of the problem and provides an easy-to-implement constant-discount-level policy. The second model formulates the real-life problem as a Markov decision process (MDP). The authors apply their methods using data collected from a Dutch fashion retailer. Furthermore, they provide extensive numerical experiments to claim generality.

Significant benefits in expected profit and return rate

With the C2C concept, the researchers claim that significant benefits can be achieved both in terms of expected profit and return rate. Even in cases where the cost-effectiveness of the C2C return programme is not pronounced, the proportion of customer-to-warehouse returns to total demand gets lower. Hence, the system can be defined as more environmentally friendly. The C2C concept can help retailers in addressing the online return problem financially and adhering to the growing need for corporate social responsibility from the last decade.