R ecent research indicates that consumers hold significant concerns about the quality of remanufactured products. To better understand this phenomenon, this manuscript combines surveys and experimental studies to identify the antecedents of perceived quality-in the form of perceived risk of functionality and cosmetic defects-and their significant impact on consumers' willingness to pay (wtp) for remanufactured electronics products. The study also controls for alternative explanations for wtp suggested in the literature, such as consumers' wtp for new products, environmental beliefs, disgust aversion toward used products, brand perceptions, risk aversion, and various demographic traits. Importantly, the study empirically estimates the magnitude and distribution of discount factors for remanufactured electronics productsthe ratio between wtp for a remanufactured product and wtp for a corresponding new product-among consumers. Finally, the manuscript analytically compares a monopolist's decision to include remanufactured products in its portfolio under both the empirically derived discount factor distributions and the classical linear demand model, which assumes constant discount factors. Interestingly, the classical linear demand model remains reasonably robust for high-level insights, such as the presence of cannibalization and market expansion effects. However, the analytical model that uses the empirically-derived distributions of discount factors demonstrates significantly higher profitability than predicted by the classical linear model. This fundamental link between risk perceptions, wtp for remanufactured products, and profitability provides new insights on how to manage demand and product pricing in closed-loop supply chains.
Additional Supporting Information may be found in the online version of this article:Appendix S1: Measures and Design Used in Study 2. Appendix S2: Additional Statistical Analysis from Study 2. Appendix S3: Questionnaires used in Study 3.
Willingness to pay (WTP) is known to be lower for remanufactured products than for comparable new products. Normative work to date has assumed that a consumer's WTP for a remanufactured product is a fraction, called discount factor, of the consumer's WTP for a corresponding new product, and that this discount factor is constant across consumers. Recent empirical research demonstrates, however, that the discount factor is not constant across consumers. This discovery has led researchers to call for an exploration of more refined utility models that incorporate heterogeneous risk preferences through elements such as risk aversion, loss aversion, and ambiguity aversion. To address this call, this article assesses each of these risk preference elements by empirically deriving WTP distributions from two interlinked studies. To provide triangulation in both the empirical method and sample, the interlinked studies employ an online survey and a laboratory experiment that elicits WTP for framed lotteries that proxy the situation of buying remanufactured products. The empirical results and robustness verifications demonstrate that a parsimonious standard utility model incorporating only risk aversion explains the WTP data reasonably well. K E Y W O R D S behavioral operations, closed-loop supply chains, decision heuristics and decision rules, remanufacturing
A fter-sales service is a major source of profit for many original equipment manufacturers in industries with durable products. Successful engagement in after-sales service improves customer loyalty and allows for competitive differentiation through superior service like an extended service period during which customers are guaranteed to be provided with service parts. Inventory management during this period is challenging due to the substantial uncertainty concerning demand over a long time horizon. The traditional mechanism of spare parts acquisition is to place a large final order at the end of regular production of the parent product, causing major holding costs and a high level of obsolescence risk.With an increasing length of the service period, more flexibility is needed and can be provided by adding options like extra production and remanufacturing. However, coordinating all three options yields a complicated stochastic dynamic decision problem. For that problem type, we show that a quite simple decision rule with order-up-to levels for extra production and remanufacturing is very effective. We propose a heuristic procedure for parameter determination which accounts for the main stochastic and dynamic interactions in decision making, but still consists of relatively simple calculations that can be applied to practical problem sizes. A numerical study reveals that the heuristic performs extremely well under a wide range of conditions, and therefore can be strongly recommended as a decision support tool for the multi-option spare parts procurement problem. A comparison with decision rules adapted from practice demonstrates that our approach offers an opportunity for major cost reductions.
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