Optimal Trade‐in Return Policies: Is it Wise to be Generous?

Abstract

T o retain old customers and promote sales, firms offer trade-in programs in which consumers bring in an old product and receive a trade-in rebate when buying a new one. However, after buying the new product, the consumer who has traded in (the "trade-in consumer") may return the new product and claim a refund for it if she/he is not satisfied with it. In this situation, under a full-trade-in-return (FTR) policy, trade-in consumers receive a generous refund that includes a trade-in-rebate for them to redeem if they purchase again in future. Alternatively, some firms have a partial-trade-in-return (PTR) policy under which trade-in consumers who return a newly purchased product only receive a refund for the amount of money they paid (without including the trade-in-rebate). In this study, we build stylized analytical models to explore the optimal choice of a trade-in-return policy. We find that there is no difference to the firm between an FTR and a PTR policy when no trade-in consumers keep unsatisfactory new products. In the case of a relatively medium residual value of the used product, FTR is always the better choice for the firm. When some trade-in consumers keep unsatisfactory new products, we show that FTR (PTR) is the better choice when the used product's durability is sufficiently low (high). We also show that the firm may not reduce its trade-in rebate when the "average new product satisfaction rate" of trade-in consumers increases. In the extended models, we find that, the firm is more likely to prefer PTR to FTR under the online-offline dualchannel retailing mode, but tends to prefer FTR to PTR when there is a competitive secondhand market, and should make the same optimal trade-in return policy when there are two selling periods.

“Free replacement extended warranty” or “traditional extended warranty”: Optimal extended warranty selection strategy

“…First, because we only consider the decentralized situation under the coordination of revenue sharing contract, we can study the extended warranty type selection strategy of the decentralized supply chain under other contract coordination, such as two-part pricing coordination and batch discount coordination. Second, since this paper only considers the single-period strategy, it will be a new research direction to explore the selection strategy of multi-period extended warranty types (Cao & Choi, 2021). At last, there may be information asymmetry of demand and quality between consumers and firms.…”

A Methodological Proposal for Implementing Demand-Shifting Strategies in the Wholesale Electricity Market

“…According to the authors of [54], PTR programs recognize users with monetary discounts that respond to a reduction in electricity consumption during peak hours, because the highest costs are reached in this block of hours. Consumers who do not display this flexibility pay the standard tariff.…”

Optimal joint trade‐in rebate strategies in a retailer‐led supply chain

“…Our research contributes to the growing operations management literature on trade‐in strategies. Specifically, the previous studies in operations management on trade‐ins focused mainly on what type of trade‐in policy should be offered (Cao et al, 2019, 2020; Cao & Choi, 2022; Desai et al, 2016; Xiao & Zhou, 2020), how to decide the optimal pricing and trade‐in rebates (Agrawal et al, 2016; Chen & Hsu, 2017; Ray et al, 2005; Zhu et al, 2016), the interaction between trade‐ins and remanufacturing (Zhang & Zhang, 2018; Zhao et al, 2021), the effects of customers' strategic behavior on trade‐ins (Hu et al, 2019; Ma et al, 2020; Yin & Tang, 2014), the effects of carbon regulations on trade‐ins (Miao et al, 2018), and the recycling platforms' trade‐in strategies (Li et al, 2022). Note that the above studies concentrated on trade‐in issues in a monopoly or duopoly environment.…”