It is no surprise to this community that consumers often hold significant concerns about the quality of remanufactured products. To better understand this phenomenon, the authors of this manuscript combine surveys and experimental studies to identify the drivers of perceived quality—in the form of perceived risk of functionality and cosmetic defects—and their significant impact on consumers’ willingness-to-pay (wtp) for remanufactured electronics products. More specifically, the authors empirically estimate the magnitude and distribution of discount factors for remanufactured electronics products as compared to new versions of the same product — the ratio between wtp for a remanufactured version and wtp for a corresponding new version—among consumers. Finally, the authors provide an analytical model that compares a firm’s decision to include remanufactured products in its portfolio under both the empirically derived discount factor distributions and the classical linear demand model, which assumes constant discount factors. Interestingly, the classical linear demand model remains reasonably robust for high-level insights, such as the presence of cannibalization and market expansion effects. However, the analytical model that uses the empirically-derived distributions of discount factors demonstrates significantly higher profitability from offering remanufactured products than what is predicted by the classical linear model. This fundamental link between risk perceptions, wtp for remanufactured products, and profitability provides new insights on how to manage demand and product pricing in closed-loop supply chains.

The above is a condensed summary of Abbey, J. D., Kleber, R. , Souza, G. C. and Voigt, G. (2017), The Role of Perceived Quality Risk in Pricing Remanufactured Products. Production and Operations Management

An online copy of the paper can be found here: https://doi.org/10.1111/poms.12628

*This recurring series provides plain-English summaries of leading academic research in the area of consumer returns. It is co-produced by Mark Ferguson (Univ. of South Carolina), Michael Galbreth (Univ. of Tennessee), and Guangzhi Shang (Florida State Univ.).

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Mark Ferguson, Guangzhi Shang, and Michael Galbreth
Mark Ferguson (U of South Carolina), Michael Galbreth (U of Tennessee), Guangzhi Shang (Florida State U)