IDEAS home Printed from https://ideas.repec.org/a/gam/jsusta/v14y2022i8p4594-d792045.html
   My bibliography  Save this article

From Used to New: Committing to Product Refresh Services

Author

Listed:
  • Michael S. Pangburn

    (Lundquist College of Business, University of Oregon, Eugene, OR 97403, USA
    These authors contributed equally to this work.)

  • Euthemia Stavrulaki

    (Managemenet Department, Bentley University, 175 Forest Street, Waltham, MA 01232, USA
    These authors contributed equally to this work.)

Abstract

In practice, we see examples of firms offering product refresh services across different industries. Refresh services promote sustainable reuse and are distinct from typical refurbished-product sales which imply a change in ownership. This study is the first to use an analytic model to derive optimal prices and quantities for a firm offering product-refresh services in tandem with new products. Using a two-period framework, we establish that a firm can use a refresh service to align its second-period decisions with its overall profitability objective. We show that by committing to offering a refresh service at a pre-established price, the firm can enjoy higher selling prices in the first period. Thus, we find that even if the direct profit contribution of refresh-service sales is negative, it is possible for their overall impact on profits to be positive. Therefore, managers must view the contribution of product refresh services holistically, considering indirect price effects, to account for their full potential value.

Suggested Citation

  • Michael S. Pangburn & Euthemia Stavrulaki, 2022. "From Used to New: Committing to Product Refresh Services," Sustainability, MDPI, vol. 14(8), pages 1-21, April.
    • Handle: RePEc:gam:jsusta:v:14:y:2022:i:8:p:4594-:d:792045
    as

    Download full text from publisher

    File URL: https://www.mdpi.com/2071-1050/14/8/4594/pdf
    Download Restriction: no
    File URL: https://www.mdpi.com/2071-1050/14/8/4594/
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Shafiee, Mahmood & Chukova, Stefanka, 2013. "Maintenance models in warranty: A literature review," European Journal of Operational Research, Elsevier, vol. 229(3), pages 561-572.
    2. Lee, Sunghee & Yoo, Shijin & Kim, Daeki, 2016. "When is servitization a profitable competitive strategy?," International Journal of Production Economics, Elsevier, vol. 173(C), pages 43-53.
    3. Gregory E. Goering, 2007. "Durable‐Goods Monopoly With Maintenance," Bulletin of Economic Research, Wiley Blackwell, vol. 59(3), pages 231-246, July.
    4. Wu, Cheng-Han, 2012. "Product-design and pricing strategies with remanufacturing," European Journal of Operational Research, Elsevier, vol. 222(2), pages 204-215.
    5. Stephen M. Gilbert & Ramandeep S. Randhawa & Haoying Sun, 2014. "Optimal Per-Use Rentals and Sales of Durable Products and Their Distinct Roles in Price Discrimination," Production and Operations Management, Production and Operations Management Society, vol. 23(3), pages 393-404, March.
    6. Necati Tereyagoglu & Senthil Veeraraghavan, 2012. "Selling to Conspicuous Consumers: Pricing, Production, and Sourcing Decisions," Management Science, INFORMS, vol. 58(12), pages 2168-2189, December.
    7. Atalay Atasu & Miklos Sarvary & Luk N. Van Wassenhove, 2008. "Remanufacturing as a Marketing Strategy," Management Science, INFORMS, vol. 54(10), pages 1731-1746, October.
    8. Nitin Bakshi & Sang-Hyun Kim & Nicos Savva, 2015. "Signaling New Product Reliability with After-Sales Service Contracts," Management Science, INFORMS, vol. 61(8), pages 1812-1829, August.
    9. Wang, Xiaolin & Zhao, Xiujie & Liu, Bin, 2020. "Design and pricing of extended warranty menus based on the multinomial logit choice model," European Journal of Operational Research, Elsevier, vol. 287(1), pages 237-250.
    10. Hodaka Morita & Michael Waldman, 2004. "Durable Goods, Monopoly Maintenance, and Time Inconsistency," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 13(2), pages 273-302, June.
    11. Heese, Hans S. & Cattani, Kyle & Ferrer, Geraldo & Gilland, Wendell & Roth, Aleda V., 2005. "Competitive advantage through take-back of used products," European Journal of Operational Research, Elsevier, vol. 164(1), pages 143-157, July.
    12. Jeremy Bulow, 1986. "An Economic Theory of Planned Obsolescence," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 101(4), pages 729-749.
    13. Bulmus, Serra Caner & Zhu, Stuart X. & Teunter, Ruud, 2014. "Competition for cores in remanufacturing," European Journal of Operational Research, Elsevier, vol. 233(1), pages 105-113.
    14. Geraldo Ferrer & Jayashankar M. Swaminathan, 2006. "Managing New and Remanufactured Products," Management Science, INFORMS, vol. 52(1), pages 15-26, January.
    15. Bazan, Ehab & Jaber, Mohamad Y. & Zanoni, Simone, 2017. "Carbon emissions and energy effects on a two-level manufacturer-retailer closed-loop supply chain model with remanufacturing subject to different coordination mechanisms," International Journal of Production Economics, Elsevier, vol. 183(PB), pages 394-408.
    16. Vishal V. Agrawal & Stylianos Kavadias & L. Beril Toktay, 2016. "The Limits of Planned Obsolescence for Conspicuous Durable Goods," Manufacturing & Service Operations Management, INFORMS, vol. 18(2), pages 216-226, May.
    17. Wang, Hongzhou, 2002. "A survey of maintenance policies of deteriorating systems," European Journal of Operational Research, Elsevier, vol. 139(3), pages 469-489, June.
    18. Amy Z. Zeng, 2013. "Coordination mechanisms for a three‐stage reverse supply chain to increase profitable returns," Naval Research Logistics (NRL), John Wiley & Sons, vol. 60(1), pages 31-45, February.
    19. Kurata, Hisashi & Nam, Seong-Hyun, 2010. "After-sales service competition in a supply chain: Optimization of customer satisfaction level or profit or both?," International Journal of Production Economics, Elsevier, vol. 127(1), pages 136-146, September.
    20. Nektarios Oraiopoulos & Mark E. Ferguson & L. Beril Toktay, 2012. "Relicensing as a Secondary Market Strategy," Management Science, INFORMS, vol. 58(5), pages 1022-1037, May.
    21. Pangburn, Michael S. & Stavrulaki, Euthemia, 2014. "Take back costs and product durability," European Journal of Operational Research, Elsevier, vol. 238(1), pages 175-184.
    22. Xiong, Yu & Yan, Wei & Fernandes, Kiran & Xiong, Zhong-Kai & Guo, Nian, 2012. "“Bricks vs. Clicks”: The impact of manufacturer encroachment with a dealer leasing and selling of durable goods," European Journal of Operational Research, Elsevier, vol. 217(1), pages 75-83.
    23. Preyas Desai & Devavrat Purohit, 1998. "Leasing and Selling: Optimal Marketing Strategies for a Durable Goods Firm," Management Science, INFORMS, vol. 44(11-Part-2), pages 19-34, November.
    24. Sreekumar R. Bhaskaran & Stephen M. Gilbert, 2009. "Implications of Channel Structure for Leasing or Selling Durable Goods," Marketing Science, INFORMS, vol. 28(5), pages 918-934, 09-10.
    25. Mann, Duncan P., 1992. "Durable goods monopoly and maintenance," International Journal of Industrial Organization, Elsevier, vol. 10(1), pages 65-79, March.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Ehsan Shekarian & Simme Douwe Flapper, 2021. "Analyzing the Structure of Closed-Loop Supply Chains: A Game Theory Perspective," Sustainability, MDPI, vol. 13(3), pages 1-32, January.
    2. Pangburn, Michael S. & Stavrulaki, Euthemia, 2014. "Take back costs and product durability," European Journal of Operational Research, Elsevier, vol. 238(1), pages 175-184.
    3. Wu, Cheng-Han, 2015. "Strategic and operational decisions under sales competition and collection competition for end-of-use products in remanufacturing," International Journal of Production Economics, Elsevier, vol. 169(C), pages 11-20.
    4. Chen Jin & Luyi Yang & Cungen Zhu, 2023. "Right to Repair: Pricing, Welfare, and Environmental Implications," Management Science, INFORMS, vol. 69(2), pages 1017-1036, February.
    5. Chowdhury, Sayan & Verma, Nishant K., 2024. "Walking a tightrope: Impact of adopting voluntary right-to-repair policy on firm profit and consumer welfare," International Journal of Production Economics, Elsevier, vol. 272(C).
    6. Cetin, Can Baris & Zaccour, Georges, 2023. "Remanufacturing with innovative features: A strategic analysis," European Journal of Operational Research, Elsevier, vol. 310(2), pages 655-669.
    7. Xue, Dongmei & Teunter, Ruud H. & Zhu, Stuart X. & Zhou, Weihua, 2021. "Entering the high-end market by collecting and remanufacturing a competitor’s high-end cores," Omega, Elsevier, vol. 99(C).
    8. Xiong, Yu & Zhao, Pei & Xiong, Zhongkai & Li, Gendao, 2016. "The impact of product upgrading on the decision of entrance to a secondary market," European Journal of Operational Research, Elsevier, vol. 252(2), pages 443-454.
    9. Kleber, Rainer & Quariguasi Frota Neto, João & Reimann, Marc, 2020. "Proprietary parts as a secondary market strategy," European Journal of Operational Research, Elsevier, vol. 283(3), pages 929-941.
    10. Xiong, Yu & Zhou, Yu & Li, Gendao & Chan, Hing-Kai & Xiong, Zhongkai, 2013. "Don’t forget your supplier when remanufacturing," European Journal of Operational Research, Elsevier, vol. 230(1), pages 15-25.
    11. Tianqin Shi & Dilip Chhajed & Zhixi Wan & Yunchuan Liu, 2020. "Distribution Channel Choice and Divisional Conflict in Remanufacturing Operations," Production and Operations Management, Production and Operations Management Society, vol. 29(7), pages 1702-1719, July.
    12. Zhou, Qin & Meng, Chao & Yuen, Kum Fai, 2020. "The impact of secondary market competition on refurbishing authorization strategies," International Journal of Production Economics, Elsevier, vol. 228(C).
    13. Cheng-Han Wu, 2021. "Production-quality policy for a make-from-stock remanufacturing system," Flexible Services and Manufacturing Journal, Springer, vol. 33(2), pages 425-456, June.
    14. Nektarios Oraiopoulos & Mark E. Ferguson & L. Beril Toktay, 2012. "Relicensing as a Secondary Market Strategy," Management Science, INFORMS, vol. 58(5), pages 1022-1037, May.
    15. Zhangwei Feng & Na Luo & Yanping Liu, 2021. "Trade-in Strategy and Competition between Two Independent Remanufacturers," IJERPH, MDPI, vol. 18(13), pages 1-13, June.
    16. Wei Yan & Youwei Li & Ying Wu & Mark Palmer, 2016. "A Rising E-Channel Tide Lifts All Boats? The Impact of Manufacturer Multichannel Encroachment on Traditional Selling and Leasing," Discrete Dynamics in Nature and Society, Hindawi, vol. 2016, pages 1-18, June.
    17. Lingfei Cai & Xuan Shi & Jingrong Zhu, 2019. "Quality Recovery or Low-End Recovery? Profitability and Environmental Impact of Durable Product Recovery," Sustainability, MDPI, vol. 11(6), pages 1-37, March.
    18. Liu, Jian & Mantin, Benny & Song, Xuefeng, 2022. "Rent, sell, and remanufacture: The manufacturer's choice when remanufacturing can be outsourced," European Journal of Operational Research, Elsevier, vol. 303(1), pages 184-200.
    19. Hiroshi Kitamura & Noriaki Matsushima & Misato Sato, 2023. "Which is better for durable goods producers, exclusive or open supply chain?," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 32(1), pages 158-176, January.
    20. Zhou, Qin & Meng, Chao & Yuen, Kum Fai, 2021. "Remanufacturing authorization strategy for competition among OEM, authorized remanufacturer, and unauthorized remanufacturer," International Journal of Production Economics, Elsevier, vol. 242(C).

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:gam:jsusta:v:14:y:2022:i:8:p:4594-:d:792045. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: MDPI Indexing Manager (email available below). General contact details of provider: https://www.mdpi.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.