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Trade-in operations under retail competition: Effects of brand loyalty

Author

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  • Tang, Fei
  • Dai, Ying
  • Ma, Zu-Jun
  • Choi, Tsan-Ming
Abstract
Trade-in promotions are increasingly recognized as an effective strategy in retail operations to boost sales. Retail firms can restrict their trade-in programs to current consumers through an exclusive trade-in program or accept trade-ins from competitors’ consumers through a nonexclusive trade-in program. Moreover, consumers may build brand loyalty towards the products they have used and thus affect their future trade-in choices. However, the effects of brand loyalty on trade-in strategies in a competitive market remain underexplored. To bridge this gap, this study analytically examines the impact of brand loyalty on exclusive and nonexclusive trade-in programs by developing a stylized duopoly model. The results show that as a defensive strategy, an exclusive trade-in program effectively retains consumers when brand loyalty is sufficiently weak. Conversely, as an offensive strategy, a nonexclusive trade-in program is more likely to attract competitors’ consumers. An exclusive trade-in program is always the dominant strategy for both firms compared with the no trade-in benchmark. However, a nonexclusive trade-in program is better for both firms when brand loyalty is sufficiently strong. Moreover, an exclusive trade-in program benefits firms with a high proportion of trade-in-sensitive consumers. In contrast, firms with a high proportion of the overall consumer base benefit from a nonexclusive trade-in program. The results not only support trade-in practices but also provide important practical implications related to trade-in competition for policymakers.

Suggested Citation

  • Tang, Fei & Dai, Ying & Ma, Zu-Jun & Choi, Tsan-Ming, 2023. "Trade-in operations under retail competition: Effects of brand loyalty," European Journal of Operational Research, Elsevier, vol. 310(1), pages 397-414.
    • Handle: RePEc:eee:ejores:v:310:y:2023:i:1:p:397-414
    DOI: 10.1016/j.ejor.2023.03.020
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