The sale of refurbished products, refurbs, represents a delicate balancing act for companies attempting to retain a share of their market and to incorporate recycling strategies into their approach. A study in the European Journal of Industrial Engineering discusses this balancing act in the context of new and refurbished sales, where consumers weigh affordability against quality.
According to Yeu-Shiang Huang of National Cheng Kung University, Taiwan, Chih-Chiang of Zhaoqing University, China, and Yi-Hsiang Tsao of the National Cheng Kung University, Taiwan, businesses must decide how to stay competitive while addressing environmental concerns. The team has used game theory to model the kinds of decisions that retailers must make and offers them tips on that balancing act.
Selling refurbished as opposed to brand-new products, especially electronic gadgets and devices, represents a classic dilemma in economics. Refurbished products are usually sold at lower cost and so offer less profit for the retailer, but they might be more attractive to the consumer because they have eco-friendly credentials. Refurbs can thus undercut the sales of brand-new items. As such, manufacturers themselves remain hesitant in their adoption of remanufacturing, despite its environmental benefits. But, for retailers, offering refurbished goods can lead to a new class of sale.
The researchers have modelled the strategic interactions between manufacturers and retailers to look at how manufacturers set the official price for the wholesale cost of their new products, while retailers respond by adding refurbs to the mix and setting the best price for those and for the brand-new products they sell.
The research emphasises that it is the environmental rather than the economic that is at stake. Strict recycling laws mean that there is a drive towards refurbishment and recycling that the retailers can be happy with, but the original manufacturers may well not be. Indeed, if retailers can take control of recycling and remanufacturing and connect directly with the end consumers of refurbs, the manufacturers’ share might shrink at least until the refurbished products have become wholly obsolete and can only be recycled for components and materials and a new product must enter the market. Retailers by working to their own economic strategy might thus play a critical role in driving sustainable practices.
Huang, Y-S., Fang, C-C. and Tsao, Y-H. (2024) ‘A study on pricing and recycling strategies for retailers with consideration of selling new and refurbished products’, European J. Industrial Engineering, Vol. 18, No. 6, pp.791–816.