Abstract: The strategy choice of Money-back guarantees of a dual channel retailer is studied. There are four kinds of MBG policies for the retailer, i.e., no MBG, MBG only in traditional channel, MBG only in direct channel, as well as MBG in both traditional and direct channels. The optimal pricing strategy as well as the optimal profit of the retailer in different MBG scenarios are derived. By the comparison analysis, it's found that the product price in the two channels only depends on the MBG state in the channel, while it has nothing to do with the MBG state in the other channel. If the retailer wants to incur the profit level in one channel, it should provide MBG in the channel when the salvage value of the return product is high and provide MBG in the other channel when the salvage value is low. By the numerical analysis, it's found that the policy which provides MBG in both channels is not always the optimal choice for the retailer. When the cost difference between the two channels is small comparatively, it is beneficial for the retailer to provide MBG in both of the channels. However, when the cost difference is moderate, the choice depends on the salvage value of product. Once the cost difference between the two channels is very large, it is always favorable for the retailer to provide MBG only in the direct channel.

Key words: money-back guarantees, dual channel, direct channel