New life for old phones is good busi­ness for ser­vice providers

The Washington Post Sunday - - TAKING STOCK - — Gal Raz and An­ton Ovchin­nikov Raz is an as­so­ciate pro­fes­sor at the Uni­ver­sity of Vir­ginia Dar­den School of Busi­ness. Ovchin­nikov is an as­so­ciate pro­fes­sor at the Queen’s School of Busi­ness in On­tario.

The big idea: The short­en­ing life cy­cles for elec­tron­ics has led to a grow­ing stream of well-func­tion­ing used prod­ucts. Many com­pa­nies are con­sid­er­ing re­fur­bish­ing them to like-new con­di­tion, then in­clud­ing them in their prod­uct lines. This has the po­ten­tial to be a truly sus­tain­able busi­ness op­por­tu­nity with pos­i­tive eco­nomic and en­vi­ron­men­tal im­pli­ca­tions.

The sce­nario: Last Septem­ber, Ap­ple un­veiled its much-an­tic­i­pated iPhone 6 and 6 Plus, the eighth gen­er­a­tion of the iPhone. On the first day that pre-or­ders were avail­able, Ap­ple and its car­rier part­ners such as AT&T and Ver­i­zon re­ceived or­ders of more than 4 mil­lion, the high­estever vol­ume in a sin­gle day.

For such ser­vice providers, this meant that in ad­di­tion to beef­ing up their prod­uct of­fer­ings with the new iPhone 6, they could also col­lect pre­vi­ous-gen­er­a­tion iPhones to re­fur­bish and sell. The cost to do so is a frac­tion of the cost of new de­vices.

Their chal­lenge was how (and whether) to in­cor­po­rate the re­fur­bished high-end prod­ucts into their prod­uct lines. On the one hand, th­ese dis­counted used de­vices would give them the op­por­tu­nity to up­sell cus­tomers higher-end ser­vices that other low priced phones wouldn’t sup­port. Since providers such as Ver­i­zon rely on ser­vices to make prof­its, they could po­ten­tially in­crease their earn­ings. On the other hand, the in­tro­duc­tion of re­fur­bished phones could can­ni­bal­ize sales of new ones.

The res­o­lu­tion: A close look at the eco­nomic and en­vi­ron­men­tal im­pacts of re­man­u­fac­tur­ing re­veals that in­clud­ing re­fur­bished prod­ucts can ac­tu­ally in­crease new-prod­uct sales. This is be­cause a prod­uct is ef­fec­tively sold twice: first as new, then as used. The cy­cle cre­ates an in­cen­tive to lower prices and in­crease sales of phones that sup­port higher-mar­gin, data-rich ser­vice plans, which de­liver higher prof­its.

Since re­man­u­fac­tur­ing may lead to growth in new prod­ucts’ sales, the to­tal en­vi­ron­men­tal foot­print could ac­tu­ally worsen. How­ever, be­cause re­fur­bished prod­ucts are not sub­ject to the man­u­fac­tur­ing process of new prod­ucts, the per-unit en­vi­ron­men­tal im­pact is much lower.

The les­son: In­cor­po­rat­ing re­fur­bished prod­ucts into a com­pany’s prod­uct line leads to prof­itable and more sus­tain­able growth. Mak­ing it work re­quires a com­pre­hen­sive un­der­stand­ing of their im­pact on de­mand, prof­its and the en­vi­ron­ment. But the busi­ness op­por­tu­nity is there: Mil­lions of fully func­tional elec­tronic de­vices are be­ing re­placed, so why not ex­pand the mar­ket and en­tice price-sen­si­tive cus­tomers to up­grade by sell­ing th­ese used de­vices — rather than have them pile up in cus­tomers’ desk draw­ers?

Newspapers in English

Newspapers from USA

© PressReader. All rights reserved.