Managing Consumer Bracketing Behaviours for E-tailing Operations

Problem definition E-tailers face a dilemma in addressing the bracketing behaviour, where consumers purchase multiple versions of a product to try at home and return the unsatisfactory ones. While this practice reduces product fit uncertainty, it also results in a surge of returns. Academic/practical relevance Despite this dilemma, how to manage bracketing remains largely under-explored in academic research, particularly in leveraging monetary leniency. Methodology We develop a game-theoretic framework, where the monopoly e-tailer incorporates consumers’ best purchase and return responses into its pricing and return service fee decisions. Results Surprisingly, despite the high reverse logistics cost, the e-tailer can still benefit from bracketing. Managing bracketing involves tailoring pricing and return strategies to product and consumer attributes. Some of these strategies run counter to traditional operations. Specifically, even if the reverse logistics cost is zero, it may still be optimal to charge for returns to extract profit from bracketing or deter bracketing. In addition, the reverse logistics cost should sometimes be incorporated into the price and not, as often, into the return fee, even if it hurts all the consumers. Finally, mitigating fit uncertainty, despite appearing beneficial, could reduce the e-tailer’s overall profit, even if it is costless. Managerial implications Our results offer actionable insights for managing bracketing. First, e-tailers banning bracketing across the board (e.g., Amazon) or applying the same return strategy for most products (e.g., Uniqlo) should develop customised strategies, targeting bracketers, non-bracketers, or both, while offering a partial or full refund and allowing or disallowing returns. Second, e-tailers encouraging bracketing through lenient return policies (e.g., Zappos) could render this practice explicit through mechanisms such as try-on schemes, while strategically employing return fees or pricing to internalise the associated costs. Finally, e-tailers striving to reduce fit uncertainty (e.g., Lululemon) should remain cautious about this practice.