Faculty & Research
Faculty & Research
Faculty & Research
When a Strategy for Sustainability is Sustainable: The Impact of Refurbished Products in Markets with Network Effects and Standards Competition
By Yilong (Eric) Zheng, Qi Wang and Chang Hee Park
Introducing refurbished versions of new and existing products is a widely practiced means of appealing to both environmentally-minded and price-sensitive consumers. There has, however, been little research done on how this strategy affects consumers’ evaluations of new products. For digital consumer products, in particular, understanding this relationship is essential for determining the wider financial implications of this increasingly popular and environmentally sustainable strategy.
A recent study we conducted across a range of products has revealed that offering refurbished digital consumer goods is something of a double-edged sword when it comes to consumer perceptions. In particular, we found that one crucial consideration is whether the product in question uses a new technology standard or an established one.
For products using a new technology standard, offering refurbished products provides an increase in the perceived value of other associated new products, due to positive network effects (i.e., the growing value of the service/platform as more people use it) gained from a rapid increase in the early user base of the underlying technology. However, for products using an established technology standard, the availability of refurbished products makes consumers less likely to purchase related brand new products. This is because the availability of refurbished products may be perceived as an indicator of poor quality with respect to brand new products, since consumers are generally aware that refurbished products are previously opened and returned, suggesting that the product is liable to fail.
This presents a number of important practical implications for any manufacturer or retailer of digital consumer goods. While supporting sustainability in consumerism and tackling the world’s mounting electronic waste problem are laudable causes – ones that resonate with various consumer segments that are becoming increasingly environmentally conscious – our findings suggest that a refurbished goods strategy is not universally viable from an economic perspective. For products using an established technology standard, the benefits of added sales (and thus added users and greater network effects) through offering refurbished versions may pale in comparison to the drawbacks of the poor quality inference this strategy may cause, while also cannibalising sales of brand new products.
That said, another key finding from our study is that connotations of poor quality are less severe for low-end products. To put it another way, the negative effects of introducing a refurbished version of a low-end product is weaker than with a high-end product. We suggest that this may be because consumers have lower expectations regarding product quality when considering lower-end products.
However, for products using a new technology standard, our study also shows that offering refurbished goods alongside brand new products can provide a boost to network effects that outstrips the downside of any perception of poor quality and/or sales cannibalisation.
At a time when digital consumer goods companies are coming under greater scrutiny regarding their environmental sustainability, these insights will be invaluable in helping individual firms shape an effective green strategy that doesn’t compromise their economic sustainability.
This article is based on a paper entitled, “When a Strategy for Sustainability is Sustainable: The Impact of Refurbished Products in Markets with Network Effects and Standards Competition.”
Yilong (Eric) Zheng is an Assistant Professor of Marketing in the Department of Marketing at Merrimack College. Qi Wang is a Professor of Marketing at CEIBS. For more on her teaching and research interests, please visit her faculty profile here. Chang Hee Park is an Associate Professor of Marketing at the School of Management at the State University of New York at Binghamton.