After 10 years in the reverse logistics industry, our team at Verdi Commerce has fielded numerous questions, but one clearly stands out as the most common: Does the sale of refurbished products cannibalize sales of new products?
This is always one of the first questions we hear when speaking with new potential brand partners. It seems everyone has this intuitive assumption that refurbished sales must certainly cannibalize new sales.
Adopting the perspective of a consumer brand, the short answer is that selling refurbished products will not displace (or ‘cannibalize’) the sales of your new products. It’s a simple answer but it’s the truth. We have been doing this long enough to have seen it born out in reality time and time again.
The idea that the sale of refurbished products would displace the sale of new products is zero-sum thinking! The reality is that refurbished products are not a piece of the same pie, but rather an entirely different one. The market for refurbished products is huge and represents a significant opportunity for all brands. Consider that the global market for refurbished consumer electronics was valued at $85.9 billion in 2022 and is expected to grow to $262 billion by 20321. Brands should be less concerned about refurbished sales cannibalizing their new sales and more concerned with whether they are positioned to win in an increasingly growing market for refurbished products!
Now, to get to a somewhat longer, or fuller, answer, let’s explore a few details.
Old Assumptions, New Markets
The assumption underlying the concern that the sale of refurbished products would displace the sale of new products is that a given brand has a set pool of potential customers, or a finite market so to speak. If any of these potential customers buy a refurbished product, their need has been met and they are no longer in the brand’s active customer pool. This makes intuitive sense, but the assumption just doesn’t hold in reality.
Our research and experience in the reverse logistics industry make it very clear that brands have more than one pool of potential customers. Sure, every brand has a primary segment of customers, and the majority of brands spend most of their marketing budget trying to maximize it. This segment is largely made up of brand-loyal customers. The type that when in need of a certain item, often turns to their preferred brand. For these customers, their experience and engagement with the brand in question is the priority element in their decision-making. This is a critically important segment of customers, and one any brand wants to make sure they never jeopardize, but it is certainly not the entirety of the pool of potential customers to be engaged.
Instead, there are two incremental segments of customers a brand must consider: The price-sensitive shopper and the sustainability-minded consumer. These additional segments can drastically increase the pool of potential customers brands can engage if they capitalize on the opportunity to do so.
The Price-Sensitive Shopper
The first additional segment brands must consider is the price-sensitive shopper. The price-sensitive shopper is clearly not a new phenomenon, but the rapid evolution of near frictionless e-commerce has empowered them as never before, extending new consumer power to this segment.
For this group, product price is the priority (within reason). When they need a new kitchen appliance, for example, they typically set a price point they are willing to spend and then seek the best option available to them within this price point. It’s not that they are necessarily brand agnostic as they do often opt for their preferred brands, but typically only when these are able to offer the desired products at the desired price points.
We’ve seen this repeatedly across our own remarketing channels and it is supported by research. In earlier foundational research in this space, Guide and Li2 monitored auction settings for new and refurbished products and documented how there was no statistically observable overlap in bidders for consumer products. Bids for refurbished products were lower than for new products and potential buyers of refurbished products who were out-bid did not increase their willingness-to-pay in order to secure a new product as an alternative to the refurbished product they missed out on. The two groups effectively operated as distinct markets delineated by a willingness-to-pay barrier. This same dynamic is also supported by more recent research by Chen and colleagues3, showing how the introduction of refurbished products can help enhance overall sales as it enables firms to differentiate prices and attract customers with different valuations on the products.
It is in this group where the refurbished product from a Tier I brand can compete on price with the new product from a Tier II brand, or a refurbished product from a Tier II brand can compete with the new product from a Tier III brand. In fact, in earlier research, Atasu and colleagues4 documented how “[a] portfolio that includes remanufactured products can enable firms to reach additional market segments and help block competition from new low-end products”.
The reality is that nearly every brand can access an incremental segment of price-sensitive customers by offering refurbished products, and this segment is additional to the brand’s principal brand-loyal customers.
The Sustainability-Minded Consumer
The other incremental segment of customers is the sustainability-minded customer, and this is growing dramatically. Research from IBM and the National Retail Foundation5, finds that 62% of consumers were willing to change their purchasing habits to reduce environmental impact, up from 57% two years ago, while purpose-driven consumers—those who choose brands based on how well they align with their values—now represent the largest segment (44%) of global consumers across all major product categories. Additionally, the NYU Stern Sustainable Market Share Index6, which has been tracking the sales of products marketed as sustainable since 2013, documents how products marketed as sustainable grew 2X faster than conventional products in 2022, with the former reporting a 5-year CAGR of 9.43% vs. 4.98% for the latter.
This interest in sustainability plays out in three principal streams: Important, Principal, Critical. For some, sustainability is important but not exclusionary, leading individuals to seek the most sustainable option among a group of comparatively priced products. For others, sustainability is of principal importance as it supersedes even concerns over price, with a willingness to pay a premium for more sustainable product options. Lastly and for still others, the concern over sustainability is a critical factor, leading these individuals to purchase what they consider to be a sustainable option or to not make a purchase at all.
Just as above with the price-sensitive shoppers, the segment of sustainability-minded consumers is additional to the brand’s principal brand-loyal pool of customers. These customers are keenly interested in understanding the sustainability impacts of the products they choose. For these customers, a brand’s and a product’s sustainability impacts are material to their decision-making process. For most, however, understanding a brand’s sustainability remains difficult as competing claims and opinions muddy the waters. In an imbalanced setting of principles colliding with uncertainty, buying refurbished products is emerging as an accessible and trustworthy step to enhancing one’s positive sustainability impacts.
The sale of refurbished products allows brands to engage customers it would otherwise risk not engaging. Refurbished products do not displace sales but rather serve to grow a brand’s market base. With price-sensitive shoppers and sustainability-minded consumers being two of the fastest-growing segments, a strategy to incorporate refurbished products into a brand’s offerings can serve to boost all sales.
Emphasis is needed on the word ‘strategy’ in that last sentence. Refurbished products represent a significant opportunity for brands today, but there is more to it than simply deciding to sell refurbished products. Should refurbished products be listed alongside your new products? Should they retail in your existing distribution channels, or should you explore developing novel channels exclusively for your refurbished products? What is your pricing strategy? Should your refurbished products be certified or not? And so on.
Strategy is key. Abbey and colleagues7 have modeled various distribution and pricing strategies and determined that when refurbished products enter the market, the optimal price of the new product should increase. Through appropriate pricing, the selling of refurbished products is not only a measure of cost-recovery for a brand but also a way to increase their customer’s willingness to pay for new products. The key is establishing the appropriate distribution and pricing strategy that works for your brand and for your target customers.
The question we hear the most is: “Does the sale of refurbished products displace the sales of new products?”, which is effectively the question of “Should I sell refurbished products?”. Our experience and research make the answer clear: The refurbished products market is the next competitive frontier and you do not want to miss this opportunity.
… But for us, the more interesting question is always “How should I sell refurbished products?” There is no doubt in our mind that selling refurbished products will not displace the sale of new products and that doing so can create tremendous value when marketed effectively. The key is in developing the proper strategic management that aligns with your brand strategy, and this is the mission that keeps our team pushing forward.
1 Munde, S. (2023). Refurbished Electronics Market Research Report. Market Research Future: https://www.marketresearchfuture.com/reports/refurbished-electronics-market-12333
2 Guide Jr., V.D.R. & Li, J. (2010). The potential for cannibalization of new products sales by remanufactured products. Decision Sciences, 41(3): 547-572.
3 Chen, J., Venkatadri, U., and Diallo, C. (2019). Optimal (re)manufacturing strategies in the presence of spontaneous consumer returns. Journal of Cleaner Production, 237.
4 Atasu, A., Guide Jr., V.D.R., and Wassenhove, V. (2010). So what if remanufacturing cannibalizes new product sales? California Management Review, 52(2): 56-76.
5 Haller, K., Wallace, M., Cheung, J., and Gupta, S. (2022). Consumers want it all: Hybrid shopping, sustainability, and purpose-driven brands. Research Insight. IBM and National Retail Foundation. Accessible: https://www.ibm.com/downloads/cas/YZYLMLEV
6. Kronthal-Sacco, R. and Whelan, T. (2023) Sustainable Market Share Index-2022. NYU Stern Center for Sustainable Business. Available: https://www.stern.nyu.edu/experience-stern/about/departments-centers-initiatives/centers-of-research/center-sustainable-business/research/csb-sustainable-market-share-index
7 Abbey, J., Blackburn, J., and Guide Jr. (2015) Optimal pricing for new and remanufactured products. Journal of Operations Management, 36: 130-146.