Managing Consumer Bracketing Behaviors for E-Tailing Operations

Problem definition: E-tailers face dilemmas in addressing bracketing behaviors, where consumers purchase multiple versions of a product to try at home and return the unsatisfactory ones. Although this practice reduces product fit uncertainty, it also results in a surge in returns. How bracketing should be managed remains largely underexplored in operations management, particularly in leveraging monetary leniency. Methodology/results: 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. Surprisingly, despite the high reverse logistics cost, the e-tailer can still benefit from bracketing. Managing bracketing involves tailoring pricing and return strategies according to product and consumer attributes. Some of these strategies challenge traditional operations and our conventional wisdom. Specifically, even if the reverse logistics cost is zero, charging for returns may still be optimal. Additionally, the reverse logistics cost should sometimes be incorporated into the price and not, as often, into the return fee, even if it hurts all consumers. Finally, despite appearing beneficial, mitigating fit uncertainty 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 serial returners (e.g., Amazon) or applying a uniform return policy for most products (e.g., Uniqlo) should develop customized strategies to induce bracketing, nonbracketing, or market segmentation. Second, e-tailers encouraging bracketing through lenient return policies (e.g., Zappos) could render this practice through mechanisms such as try-on schemes while strategically employ return fees or pricing to internalize the associated costs. Third, e-tailers transferring return costs through a return service fee (e.g., Zara) should consider incorporating these costs into the product price. Finally, e-tailers striving to reduce fit uncertainty (e.g., Lululemon) should remain cautious about this practice. Funding: This work was supported by the Research Foundation for Youth Scholars of Beijing Technology and Business University [Grant RFYS2025]; the National Social Science Fund of China [Grant 24AZD067]; the National Natural Science Foundation of China [Grant 72501142]; the Humanity and Social Science Foundation of Ministry of Education of China [Grant 24YJC630112]; and the Beijing Natural Science Foundation [Grant 9254033]. T.C.E. Cheng was supported by The Hong Kong Polytechnic University under the Fung Yiu King-Wing Hang Bank Endowed Professorship in Business Administration. Supplemental Material: The online appendices are available at https://doi.org/10.1287/msom.2024.1306 .