From Used to New: Committing to Product Refresh Services

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.

Automated summary

This study uses an analytic model to determine the optimal prices and quantities for a firm offering product-refresh services, and finds that even if the direct profit contribution of such services is negative, they can still have a positive impact on overall profits by increasing selling prices. Managers should consider the contribution of product refresh services holistically, including indirect price effects.