Return Freight Insurance Strategy and Price Decisions for a Dual-Channel Supply Chain in the Presence of Showrooming

“Showrooming” refers to the practice of visiting brick-and-mortar stores to research merchandise before purchasing it online for a lower price. With the proliferation of e-commerce and ubiquity of mobile devices, such a phenomenon has become increasingly frequent. We build a stylized game model of a dual-channel supply chain to study the manufacturer's return freight insurance strategy and all players' price decisions in the presence of showrooming. Several significant results are uncovered. Upon offering complimentary return freight insurance, both the manufacturer and the retailer can justifiably raise product prices, while the insurer should lower the premium as the manufacturer's unit return handling cost is relatively high. The deployment of a complimentary return freight insurance strategy counters showrooming, intriguingly shifting consumer preference from online to offline purchases. The condition under which the manufacturer opts for this strategy emerges when his unit return handling cost is high. The manufacturer's motivation to implement this strategy is further reinforced in the presence of a large potential market share of consumers who probably engage in showrooming. Further, while this strategy yields a diminished consumer surplus, it can result in a beneficial scenario for the manufacturer, the retailer, and the insurer, fostering a collaborative “win-win-win” outcome.