Optimizing Trade-In Strategies: Delegation and Marketing Investments in a Closed-Loop Supply Chain

Abstract

In the new era of circular economy system, trade-in is becoming more and more prevalent. In this study, we focus on two types of trade-ins, i.e., ‘trade old for cash (T-C)’ and ‘trade old for new (T-N)’. To explore how manufacturers should implement trade-ins, whether to delegate trade-ins to resellers and whether to invest in marketing efforts, three models are developed (M, R, MM). The results reveal that investing in marketing efforts would bring more profits to manufacturers when trade-ins provided by manufacturers. The share of returning consumers and government subsidies play a very important role in whether manufacturers delegate trade-ins to resellers. Surprisingly, government subsidies are not always beneficial for manufacturers due to the change of the number of returning consumers. In addition, considering that platforms will be involved in practice, this study extends the Model MM into two models (MP, RP). The results indicate that, under the premise of introducing a platform, the variations in trade-in demand within specific fixed parameter ranges are closely linked to the marketing cost coefficient incurred by manufacturers and the share of returning consumers. To achieve an optimal strategy, the platform should establish a suitable commission rate that aligns with market demand.

Keywords: trade old for cash, trade old for new, marketing effort, government subsidy, closed-loop supply chain