Return Policies for Fashion Products in the Presence of Snob Effect

ABSTRACT Customers typically exhibit the snob effect when purchasing fashion products. Different return policies have varying impacts on product exclusivity, which in turn significantly influence customers' utility and purchasing behavior. Therefore, it is crucial for the retailer to design appropriate return policies when the snob effect exists. This paper explores the impact of the snob effect on the return policies for fashion products. We analyze the equilibrium outcomes of different refund policies (no‐refund or full‐refund) and examine the conditions under which the retailer benefits from full‐refund policies. The main findings and insights are as follows: First, if customer return costs are high, the retailer always adopts no‐refund policies; otherwise, the retailer prefers full‐refund policies when customers' sensitivity to stockout probability is below a certain threshold. Second, the optimal order quantity for full‐refund policies is not necessarily lower than that for no‐refund policies, which depends on the retailer's trade‐off between the high‐margin effect and the low‐availability effect. In addition, we explore the interaction between the snob effect and strategic customer behavior and find that the snob effect mitigates customers' strategic deferral. Finally, in a mixed market, the retailer's adoption of return policies for different customer segments mainly depends on the feasibility of price discrimination and the product's salvage value.