The Strategic Role of Exchange Promotions

Preyas S. Desai (), Devavrat Purohit () and Bo Zhou ()
Additional contact information
Preyas S. Desai: Fuqua School of Business, Duke University, Durham, North Carolina 27708
Devavrat Purohit: Fuqua School of Business, Duke University, Durham, North Carolina 27708
Bo Zhou: Robert H. Smith School of Business, University of Maryland, College Park, Maryland 20742

Marketing Science, 2016, vol. 35, issue 1, 93-112

Abstract: An exchange promotion allows consumers to turn in an old good and receive a discount toward the purchase of a new product. The old good that is turned in can either be within the same category as the new good or it may be in a different category. For example, one can turn in an old CD player to count toward a new CD player (a within-category exchange or traditional trade-in) or toward a new television (a cross-category exchange). This paper studies both within-category and multicategory exchange promotions and analyzes their similarities and differences. In a competitive setting with two firms, we model exchange promotions and establish the equilibrium outcomes. We find that categories in which consumers have a high level of waste aversion are more likely to have multicategory exchange promotions rather than within-category or no promotions. Multicategory exchange promotions can increase both consumers’ replacement purchases and their new purchases. Interestingly, we also find that strategic considerations can lead to a prisoner’s dilemma outcome in which neither firm offers any kind of exchange promotion. However, waste aversion and multicategory exchange promotions can give firms stronger incentives to get out of the prisoner’s dilemma outcome.

Keywords: behavioral economics; durable goods; emerging markets; marketing strategy; waste aversion; promotion; price discrimination; trade-in; segmentation (search for similar items in EconPapers)
Date: 2016
References: Add references at CitEc
Citations: View citations in EconPapers (18)

Downloads: (external link)
http://dx.doi.org/10.1287/mksc.2015.0955 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:inm:ormksc:v:35:y:2016:i:1:p:93-112

Access Statistics for this article

More articles in Marketing Science from INFORMS Contact information at EDIRC.
Bibliographic data for series maintained by Chris Asher ().