Abstract: The Internet has made online shopping a global daily phenomenon. To stay competitive, many click-and-mortar retailers have intensified their online promotions, which have become a core marketing tactic for businesses without physical stores. In 2017, U.S. online retail sales surpassed MYM370 billion, while that of Chinese websites reached approximately RMB 7 trillion. Customers, however, cannot touch or feel a product before they purchase online. Indeed, product returns in Internet retailing have been shown to be, on average, as high as 22% of sales. This leads to much higher rates of customer returns in the online channel, which in turn leads to significant costs to retailers. In this paper, it is considered that the online retailer offers a money-back guarantee, which allows customers to return product that do not meet their expectations to the retailer for a full refund. Two benchmark models of a one-manufacturer-one-online retailer supply chain are established with asymmetric information and full information, respectively.The main work in this paper includes four parts. At first, optimal contracts are proposed and the optimal sales promotion strategies and contract design under full information and asymmetric information are analyzed, respectively. Second, on this basis, the effects of the product returns on the equilibriums are analyzed, and consequently the optimal pricing, promotion and contract design of supply chain members under different types of promotion cost are compared. Third, the optimal decisions of both the manufacturer and online retailer, and the changing of consumer surplus under full and asymmetric information are compared. And the effect of different types of promotion cost and asymmetric information on willingness to share information and negotiation behaviors is presented. Finally, to address the value of money-back guarantee, the optimal decisions of both the manufacturer and online retailer, and the changing of profit of supply chain members and consumer surplus under before and after offers a money-back guarantee are compared.The results show that, the contracting scheme, composed of a wholesale price and a fixed payment, can coordinate the supply chain perfectly under symmetric information. By solving the optimization problem, the optimal pricing, promotion and contract design for supply chain members are presented under asymmetric information, respectively. Further, it is found that the manufacture could optimize the contract under asymmetric information by balancing the trade-off between the loss of the supply chain's profit and the information rent. And the online retailer may have an incentive to reveal the private information voluntarily and share the supply chain's profit with manufacture under certain condition. The money-back guarantees strategy make a loss of the manufacturer's expected profit, but may not decrease the online retailer's expected profit and the consumer surplus.In summary, the value of money-back guarantees under asymmetric information is investigated. Moreover, the contracting mechanisms are used to coordinating the online retail supply chain under asymmetric information, which offers a practical and a theoretical guidance to improve the value of online retail supply chain.

Key words: customer returns, promotion strategies, asymmetric information, contract design