Abstract:

Trade-in programs， as an effective means of promotion strategy to retain loyal consumers and promote the sales of new products， are widely implemented in practice. Consumers who participate in the trade-in program can obtain a special discount toward the purchase of new products. The returned old products may either be within the same brand as the new product or be in a different brand. Accordingly， enterprises can offer a within-brand trade-in program to accept their own consumers only or offer a multi-brand trade-in program to attract consumers from their competitor. In addition， as consumers can gain more information regarding how well a product fits their preferences after using it， they may show some loyalty to the products they have used. The strength of consumer loyalty will affect their trade-in choices in their next purchase. In this context， it is natural to wonder what type of trade-in programs （within-brand or multi-brand） the enterprise should offer in a competitive market when considering consumer loyalty.In this paper， a game-theoretic approach is applied to examine whether competing enterprises should offer a within-brand trade-in program or a multi-brand trade-in program when facing the impacts of consumer loyalty. Based on the Hotelling model， pricing and trade-in rebate models under different trade-in strategies of the two enterprises are developed. The impacts of consumer loyalty on their optimal decisions and profits are analyzed. The results show that when the trade-in market is partially covered， no matter what trade-in strategies the two enterprises provide， it has no impact on the optimal prices of new products， the within-brand trade-in rebates， and the number of loyal consumers. Moreover， multi-brand trade-in is the pure-strategy equilibrium of the two enterprises. When both enterprises provide multi-brand trade-in and the trade-in market is fully covered， the within-brand trade-in rebate decreases while the number of loyal consumers increases with the increase of consumer loyalty. Moreover， no matter the trade-in market is partially covered or fully covered， the stronger the loyalty of replacement consumers is， the more conducive the enterprise will be to retain its own loyal consumers and attract the competitor’s brand switchers， so as to gain more profits. The results not only support some of the current trade-in practices but also have important managerial implications to guild enterprises to provide an appropriate type of trade-in program under competition.

Key words: trade-ins, consumer loyalty, competition, Hotelling model