Seminar: Customization and Returns by Gökçe Esenduran
We examine this tension via a Stackelberg game model in which the firm (leader) decides the prices and returns policies for its products (customized, standard, or both), and consumers (followers) decide which product to buy given the initial noisy valuations, and whether, upon experiencing the product, to return it or not. Both parties act strategically: forward-looking consumers incorporate the real option value of possible returns into their initial purchasing decisions, and the firm incorporates consumers' best purchase and return response into its pricing and returns policy decisions. Beyond this overarching principle, our model combines the approaches from both customization and returns bodies of literature, and possesses multiple realistic features: Hotelling-like heterogeneity in consumer preferences, uncertainty in ex-post valuations and the associated stochastic dominance for customized versus standard products, and increase in valuations from customization (“IKEA effect”), -- all in an elegant stylized model amenable to the analytical investigation.
Our main insight is two-fold. First, we show that the benefits from allowing customized products returns are smaller than for standard products, but the costs are bigger, and thus allowing returns of customized products is rarely profitable by itself. However, -- and most importantly, -- we also show that a firm that offers both standard and customized products could use customized products returns policy as a way to nudge consumers to self-select from buying standard products toward buying customized, and by doing so reduce returns. Since returns represent an enormous cost for manufacturers and retailers alike, this novel linkage between customization and returns provides insight to numerous firms across multiple industries, and has the potential to affect millions of consumers.
Gökçe’s current research primarily focuses on sustainable operations. Whether driven by regulations or taken voluntarily, the true sustainability impact of firms’ decisions is shaped by the interactions of supply chain members, market competition, and consumer preferences. She studies the interplay between these factors and their effect on firms’ sustainability performance. Her research has been published in journals such as Manufacturing & Service Operations Management, Production and Operations Management, Journal of Operations Management, IISE Transactions, and Naval Research Logistics. She received the Krannert Young Faculty Scholar Award in 2019.
Gökçe has taught courses across all programs including Data Analysis for Managers, Sustainable Operations, Operations Management, and Doctoral Seminars on Sustainable Operations and Game Theory. She is a senior editor for Production and Operations Management and associate editor for Decision Sciences Journal, and she actively serves as a referee for top-tier OM journals. She served as the chair/co-chair of several tracks in POMS Conferences, including the Environmental Operations, Economics Models in Operations Management, Closed-Loop Supply Chains, and Marketing and OM Interface. She also served as the treasurer of Women in OR/MS in 2014-2015, the secretary and then the president of the POMS College of Sustainable Operations in 2016-2018. Currently, she is serving as the chair of MSOM Sustainable Operations SIG.