A strategic view of refurbished goods

Abstract

‘Refurbished goods’ are goods that are deemed unfit for sale at full price for a variety of reasons regarding their perceived or actual quality deficiency. These goods are then ‘refurbished’ i.e. brought back to full functionality till they reach original manufacturing specifications. Such products are then sold by the manufacturer itself or by third party resellers at deep discounts, making them attractive options for segments of customers looking for higher value at lesser cost. The present thesis, comprising of three studies, explores strategic implications of these goods from a customer point of view, providing insights into the customer perception formation, pricing implications, consequences to other product offerings, and customer trust on such products. The first study explores the customer’s reaction to the lower prices of refurbished goods and their consequent pricing perceptions regarding the higher priced new products. The study uses Price Fairness literature to explore how negative emotions play a role in the mental processing of customers as they deem the full price of new product offers as unfair when exposed to the lower price of their refurbished counterparts. The second study explores the possible strategic uses of refurbished goods to lure the customers into selectively choosing certain targeted options, not the refurbished product itself, among a set of available options. This phenomenon is called the Decoy Effect and has been explored in detail in existing literature. The study explores this possibility and the conditions in which it exists. The results indicate that refurbished goods can be used as decoys but this phenomenon, however, was only found in cases where the customer was under a budgetary constraint. The third study looks at the customer's trust perceptions of refurbished goods and how promotions targeted at these trust perceptions affect the customer’s willingness to purchase the refurbished goods. It looks into a new dimension of trust regarding refurbished goods: institutional trust i.e. whether the customer trusts the process of refurbishing. The results indicate that seller reputation remains the strongest factor affecting the customer’s willingness to purchase regarding refurbished goods but the customer’s trust placed on the process of refurbishing is also significant.