‘Refurbished’ products can affect consumer appreciation for new product

Used articles, such as, printer cartridges or tablets are increasingly being repaired or refurbished to be sold on at a lower price than the brand-new product. Companies are better off leaving this ‘refurbishing’ to their competitors rather than doing this themselves, argues Professor of Marketing Koert van Ittersum of the University of Groningen. The fact is that consumers appreciate the new product less when the producer himself also offers second-hand versions. By contrast, if a competitor refurbishes and sells the second-hand products, the appreciation for the original new product increases.

Van Ittersum and fellow researchers Vishal Agrawal Georgetown University, Washington) and Atalay Atasu (Georgia Institute of Technology, Atlanta) are publishing these research results in the article "Remanufacturing, Third-Party Competition, and Consumers' Perceived Value of New Products", that appeared in the prestigious journal Management Science.

Effect on sales

“Consumers discard products such as mobile phones or gps systems at an ever increasing rate”, says Van Ittersum, “while the residual value of old products can still be high. Companies can profit from this, but then the question arises how can you do this in a profitable manner and without adversely affecting the sales of your new products. You could, for instance, imagine that the consumer does not quite understand the difference between the products or that he has doubts about the quality.”

In a number of behaviour experiments the researchers looked at the effect of the existence of refurbished products. Van Ittersum: “It appears that when the original producer sells the refurbished products, that this can decrease consumers appreciation of the new product by as much as 8 percent. If, however, a third party takes on this refurbishing and sales then this could lead to an increase of appreciation of the new product by some 7 percent. And this means more profit for the original producer.”

Misunderstanding the price difference

There are a number of possible explanations for this difference. Van Ittersum: "When a company manufactures and sells both new and refurbished versions then the consumer assesses these as comparable products, and as a result the price difference is not understood. In addition, there are doubts about the quality because clearly the company owns many non-functioning products. All this leads to a decrease in appreciation of the new product. However, if a competing party takes this one then the consumer does see a difference between the two versions. The refurbishing of the product, after, all is not carried out by the specialised original producer and according to the consumer because of that it cannot be as good as the new version."

More information

• Prof.dr.ir. Koert van Ittersum
• The full publication online (for University of Groningen staff and students)