Valuation of money-back guarantees for retail goods: a test of the real-option perspective

摘要

Purpose - The paper aims to develop an alternative valuation model for money-back guarantees (MBG) using a real-option approach and examine the validity of the proposed model with an experimental design. This study attempts to address how retailers appropriately price MBG from a consumer value-based viewpoint. Design/methodology/approach - The study defines the perceived post-purchase product value as a stochastic underlying process, and then MBG option value could be theoretically determined by the real-option pricing approach. For the test of the real-option perspective on MBG, a 2 × 2 × 2 factorial experimental design is conducted to examine the empirical effects. Findings - With model specification, the study investigated the effects of three key factors, i.e. price level, perceived risk level, and consumers' risk-aversion, which are characterized by a two-sided effect on MBG option value. The relationships among those factors also are clarified through theoretical analyses. The empirical results could be explained well by the proposed model. Originality/value - Faced with increasingly competitive market, retailers typically need more sophisticated pricing strategies. The study can offer retailers a more comprehensive understanding of consumers' perceived value of MBG in various situations and thereby suggest some management implications for the MBG pricing issue.