Manufacturer returns: An empirical study

Abstract

Manufacturer returns, or buyback, have been increasingly observed in manufacturer-retailer channels. Using proprietary contract and sales data, this study empirically examines two key questions associated with buyback: (1) why does a manufacturer offer buyback to a retailer and (2) how are a manufacturer’s buyback decisions associated with its own and a downstream retailer’s marketing strategies? The existing research on the topic has been dominated by theoretical work. Instead, we use rich data to provide validations for the analytical models, as well as new insights above and beyond what is known from them. Our empirical findings suggest that buyback plays multiple critical roles simultaneously for a manufacturer, including risk-sharing role and informational role. Our results also show that whether a manufacturer offers buyback to the retailer is significantly associated with its own and the retailer’s pricing, promotion, and inventory decisions. Furthermore, the impacts vary across product categories that exhibit distinct characteristics.

Keywords:

• Buyback
• manufacturer–retailer channels
• manufacturer returns