Forum for Science, Industry and Business

Sponsored by:     3M 
Search our Site:

 

New Or Used? A Study on Consumer Purchasing Decisions and How They Fit Into a Company's Remanufacturing Strategy

02.02.2011
If consumers were given a choice between buying a brand new MP3 player or a cheaper, refurbished one, which would they choose?

Professor Anton Ovchinnikov, who teaches Decision Analysis courses at the University of Virginia Darden School of Business, has designed a new model to help companies determine which consumers would choose the refurbished model. He describes it in his study, “Revenue and Cost Management for Remanufactured Products,” which appears online in the Production and Operations Management Journal.

Consumer behavior and associated demand cannibalization play a central role in a company’s decision to add remanufacturing to its business operations. According to Ovchinnikov, standard methodologies that rely on consumers’ willingness to pay (WTP) do not accurately determine how many consumers would switch from buying new products to used products. Ovchinnikov used surveys and consumer focus groups to show that a segment of consumers would prefer to stick with the new and more expensive product.

“For example, in one of the studies we found that at a 40 percent discount, 82 percent of subjects found the product’s price below their WTP. A traditional WTP-based approach would suggest that 82 percent of customers would switch to the remanufactured product,” Ovchinnikov says. “However, 39 percent of those respondents doubted product quality because of the low price and in the end only 43 percent made the switch.”

On a graph, Ovchinnikov represents this behavior as an inverted-U. His study shows that the company incorporating the inverted U-shape consumer behavior into their remanufacturing strategy remanufactures under broader conditions, charges a much lower price, typically remanufactures more units and has incremental profits from remanufacturing twice as high as the company that uses WTP alone.

“To profit from remanufacturing, companies need to carefully balance cannibalization of the new product’s sales with new demand that remanufactured products can attract from price sensitive consumers and overlay the two factors with the cost structure that is specific to a remanufacturing operation,” Ovchinnikov says.

Companies also need to weigh the number of remanufacturable used products that a company receives against the number of remanufactured products it wants to sell.

“The more used products (called cores) the company acquires, the cheaper it is to remanufacture a given number of units. A certain fraction of returns typically correspond to so-called ``false returns” for which no refurbishing is needed at all; the remaining units require some work and parts and are therefore more expensive.”

Ovchinnikov shows that companies may want to strategically capitalize on that dependency and collect more cores than they intend to remanufacture. Doing so could also further a company’s sustainability goals.

“The company incorporating the inverted-U model generally acquires more cores and remanufactures more units,” Ovchinnikov says. “This suggests that a better understanding of consumer behavior also has the potential to benefit the environment by diverting more items from the waste stream.”

In the future, Ovchinnikov will look at other aspects of remanufacturing electronics.

“It could be interesting to consider the introduction of remanufactured products as a mechanism to create/change product lines. For example, a $139 remanufactured version of a $399 smartphone could be cannibalizing not only the sales of this costlier device, but also the sales of the “regular” phones priced around $139. It could be that consumers who purchase refurbished smartphones are more likely to spend more on voice or data plans. Thus cannibalizing regular phone sales could in fact be profitable overall,” Ovchinnikov adds.

For more information, contact communication@darden.virginia.edu

Abena Foreman-Trice | Newswise Science News
Further information:
http://www.virginia.edu

More articles from Studies and Analyses:

nachricht Multi-year study finds 'hotspots' of ammonia over world's major agricultural areas
17.03.2017 | University of Maryland

nachricht Diabetes Drug May Improve Bone Fat-induced Defects of Fracture Healing
17.03.2017 | Deutsches Institut für Ernährungsforschung Potsdam-Rehbrücke

All articles from Studies and Analyses >>>

The most recent press releases about innovation >>>

Die letzten 5 Focus-News des innovations-reports im Überblick:

Im Focus: Giant Magnetic Fields in the Universe

Astronomers from Bonn and Tautenburg in Thuringia (Germany) used the 100-m radio telescope at Effelsberg to observe several galaxy clusters. At the edges of these large accumulations of dark matter, stellar systems (galaxies), hot gas, and charged particles, they found magnetic fields that are exceptionally ordered over distances of many million light years. This makes them the most extended magnetic fields in the universe known so far.

The results will be published on March 22 in the journal „Astronomy & Astrophysics“.

Galaxy clusters are the largest gravitationally bound structures in the universe. With a typical extent of about 10 million light years, i.e. 100 times the...

Im Focus: Tracing down linear ubiquitination

Researchers at the Goethe University Frankfurt, together with partners from the University of Tübingen in Germany and Queen Mary University as well as Francis Crick Institute from London (UK) have developed a novel technology to decipher the secret ubiquitin code.

Ubiquitin is a small protein that can be linked to other cellular proteins, thereby controlling and modulating their functions. The attachment occurs in many...

Im Focus: Perovskite edges can be tuned for optoelectronic performance

Layered 2D material improves efficiency for solar cells and LEDs

In the eternal search for next generation high-efficiency solar cells and LEDs, scientists at Los Alamos National Laboratory and their partners are creating...

Im Focus: Polymer-coated silicon nanosheets as alternative to graphene: A perfect team for nanoelectronics

Silicon nanosheets are thin, two-dimensional layers with exceptional optoelectronic properties very similar to those of graphene. Albeit, the nanosheets are less stable. Now researchers at the Technical University of Munich (TUM) have, for the first time ever, produced a composite material combining silicon nanosheets and a polymer that is both UV-resistant and easy to process. This brings the scientists a significant step closer to industrial applications like flexible displays and photosensors.

Silicon nanosheets are thin, two-dimensional layers with exceptional optoelectronic properties very similar to those of graphene. Albeit, the nanosheets are...

Im Focus: Researchers Imitate Molecular Crowding in Cells

Enzymes behave differently in a test tube compared with the molecular scrum of a living cell. Chemists from the University of Basel have now been able to simulate these confined natural conditions in artificial vesicles for the first time. As reported in the academic journal Small, the results are offering better insight into the development of nanoreactors and artificial organelles.

Enzymes behave differently in a test tube compared with the molecular scrum of a living cell. Chemists from the University of Basel have now been able to...

All Focus news of the innovation-report >>>

Anzeige

Anzeige

Event News

International Land Use Symposium ILUS 2017: Call for Abstracts and Registration open

20.03.2017 | Event News

CONNECT 2017: International congress on connective tissue

14.03.2017 | Event News

ICTM Conference: Turbine Construction between Big Data and Additive Manufacturing

07.03.2017 | Event News

 
Latest News

Argon is not the 'dope' for metallic hydrogen

24.03.2017 | Materials Sciences

Astronomers find unexpected, dust-obscured star formation in distant galaxy

24.03.2017 | Physics and Astronomy

Gravitational wave kicks monster black hole out of galactic core

24.03.2017 | Physics and Astronomy

VideoLinks
B2B-VideoLinks
More VideoLinks >>>