abstract

B2C platforms are increasingly implementing trade-in programs to boost sales. Most of these platforms have adopted dual-format retailing model including both self-run stores and third-party stores. Under trade-in program framework, B2C platforms will determine the optimal trade-in rebate, and whether to offer the rebate to consumers with gift card (GC) or cash coupon (CC). GC can only be used in self-run stores, while CC can be used in both stores. To entice more consumers to trade-in products, platforms may launch trade-in efforts in the market. To address such decision-making challenges, we consider a B2C platform who owns a self-run store and hosts a third-party store, and examine the optimal tradein strategy for the platform by developing four theoretical models. We first present two models without considering trade-in efforts, i.e., one model regarding GC payment, and one model regarding CC payment, and then extend them by taking trade-in efforts into consideration. Some interesting findings and insights are achieved. In particular, we find that both GC and CC do not always benefit the platform. Interestingly, offering high quality and low selling price for products in both the self-run store and the third-party store are also not always beneficial to the platform. So is the competition between both stores. Launching trade-in efforts may lead to a lower trade-in rebate but a higher profit for the platform. A counterintuitive finding is obtained that a higher gift card redemption rate is not beneficial to the platform, and vice versa.

Introduction

Consumers are increasingly purchasing on online retailing platforms, e.g., Amazon.com and JD.com. To retain consumers and expand market share, many platforms adopt trade-in programs to entice the existing consumers to make repeat purchases, and further attract potential new comers to buy products. Typical trade-in program as a service in a business-to-consumer (B2C) platform operates as follows. Consumers firstly turn in used products to the platform. When receiving used products, the platform will check the products and offer consumers special discounts, which can be used in their future purchases. This discount is referred to as trade-in rebate [1]. Finally, consumers can use trade-in rebates to buy any desirable products on the platform. Trade-in programs are widely observed on B2C platforms such as Amazon.com, Bestbuy.com, JD.com, Suning.com and Gome.com.cn. Traditional trade-in programs are extensively used in durable product markets, e.g., automobile, household appliances, electronics and technology industries [1–۳]. In traditional trade-in programs, trade-in rebates are commonly redeemed toward repeat purchases of successive-generation products of used products. Consequently, trade-in can serve as an effective new product sales mechanism [2]. For instance, sales percent of new car through trade-in is approximately 57% in automobile industry [4]. However, in B2C transactions, trade-in is regarded as an important strategic leverage of B2C platforms to entice the existing consumers to make further purchases for any desired products to increase profitability. Furthermore, trade-in program can accept any specified used products regardless of whether bought from the platforms. In this regard, this program can effectively attract new consumers to make deals on platforms. Motivated by these evidences, the primary goal of this paper is to examine the optimal trade-in strategy of B2C platforms. In recent years, many B2C platforms are increasingly adopting “dual-format” retailing model to sell products.