Optimal trade-in strategy for advance selling with strategic consumers proportion

Abstract

Purpose This study aimed to optimize the trade-in pricing strategy. To leverage market share, many sellers adopt trade-in strategy for advance selling, Customers can return their old products at a discount price when they buy new products. This can help increase the market share and decrease natural resource consumption. Design/Methodology/Approach We consider a seller who sells new-generation products over two periods: advance selling and regular selling. Based on the rational expectation equilibrium, we adopt dynamic programming to construct a two-period pricing model with three different trade-in strategies–only in period 2, in both periods, and not at all–explaining the trade-in strategy as a promotion tool used by a monopolist to discriminate for advance selling between new and old customers. Findings The results suggest that the optimal price is determined by the proportion of old customers, discount factor and product innovation level. Whether and when to give a trade-in rebate to old customers depends on these parameters. The seller’s choice of optimal trade-in strategy depends on the threshold value of the new customer demand and trade-in demand. Originality/Value Most existing literature focuses on advance selling strategies and trade-in strategies. To the best of our knowledge, this is a pioneering study that adopts trade-in as part of the advance selling strategy.

Selection of presale models for innovative products considering channel preferences and valuation differences

“…Their study demonstrates that under the presale efforts of supply chain members, direct presales can increase enterprise profits. Wang et al [ 41 ] use dynamic programming to construct three different two-stage trade-in pricing models and find that the optimal price is determined by the proportion of old customers, the discount coefficient, and product innovation level. Although the above studies address dual-channel presales, they focus only on the influence of channel selection on product pricing strategies and lack in-depth discussion on the impact of presale entities by channel selection.…”

“…(2) Consumers’ perceived value of innovative products (denoted by v ) follows a uniform distribution in the range [0, 1]. According to the literature [ 20 , 27 , 35 , 38 , 39 , 41 ], the consumer’s utility from buying products is in the presale period and in the spot sale period. Here, θ y represents the channel preference of the consumer.…”

Dual-Channel Pricing Decisions for Product Recycling in Green Supply Chain Operations: Considering the Impact of Consumer Loss Aversion

“…When faced with loss-averse consumers, manufacturers tend to raise product prices [21]. Wang et al studied new product presale and returned strategies under strategic consumer loss aversion to providing pricing for retailers to presell new products and make optimal ordering decisions [22].…”