Trade-in strategy for a durable goods firm with recovery cost

Abstract

This study deals with the trade-in rebates offered by the manufacturer to the consumers. We investigate when and how a durable goods firm should offer a trade-in rebate to collect and recover used products, in order to achieve better price discrimination and weaken competition from third-party remanufacturers. It creates segment effect by offering different prices to different groups of customers. This study determines the optimal pricing and/or trade-in rebate, and examines the strategic choice among the three options facing the firm. We develop analytic models that incorporate key features of durable goods into model formulation, namely the deterioration rate and the recovery cost of the used goods. Our research findings include: the rebate magnitude of trade-in-to-high option increases in the deterioration rate, but decreases in the customer's willingness to trade-in and the manufacturing, recovering, and maintenance costs, and the strategic choice among the three options depends critically on the two features of the deteriorating rate and recovery cost.

Evaluation of Waste Electronic Product Trade-in Strategies in Predictive Twin Disassembly Systems in the Era of Blockchain

“…Trade-in incentives can be offered in two distinct forms: immediate credits or discounts to be redeemed on new product purchases [60][61][62]. The literature on trade-in policies is expansive in both economics and closed-loop supply chain management [6,63]. Researchers addressed many issues involved in product take-back acquisition decisions: the existence of a secondary market in monopolistic firms [7]; competition between OEMs and remanufacturers in monopoly markets [6,64,65] or duopoly ecosystems [66][67][68][69]; the comparison between trade-ins and different marketing strategies [7,70,71]; the trade-off between online or offline platforms [72,73]; the analysis of buyback and discounts programs [62]; and the optimal rebate decision in business-to-consumer foundation [74][75][76].…”

A Literature Review of Old Products Recycling and Trade-In

“…By considering the interaction between "forwardlooking" consumers and enterprises and the heterogeneity of market consumers, we found that forward-looking consumers are willing to pay higher prices than the value of products. Chen [30] further proposed that when considering strategic consumers, whether enterprises would carry out the trade-in depends on the price and characteristics of the new product, and proposed that the depreciation rate will increase with the increase of the depreciation rate of the used product, but decreases with the increase of consumer's willingness to exchange the old for the new products.…”

“…Agrawal [31] studied the impact of trade-in preferences on price discrimination, established a bargaining model between manufacturers and recyclers, and finally coordinated the price issue between them by providing trade-in services, and proposed that an enterprise can achieve perfect price discrimination by using trade-in preferences. Ray [32] studied how firms can provide optimal service strategies to replace old products with new ones under the assumption that durable goods technology is relatively stable. They found that changes in trade-in rebate were affected by factors such as the durability and depreciation rate of used products.…”

“…This discount can be regarded as a kind of price discrimination for future purchases. Chen [33] explored the opportunities and ways for enterprises to offer discounts on trade-in.…”

Joint Advertisement and Trade-In Marketing Strategy in Closed-Loop Supply Chain

“…Based on their research, Li et al [15] developed a two-period closed-loop supply chain model, considering the influence of a secondary market, where the OEM can sell its remanufactured products. The literature about the trade-in program mainly discuss the role of a trade-in strategy stimulating market demand, reducing resource waste, and improving the total social welfare [16][17][18][19][20].…”