The Pricing Strategies For The Upgraded Product Under An Exchange-old-for-new Program With Coupons

This paper studies the pricing problem where there are two products, one of which is the upgraded version of the other. The paper studies the EON program with coupons, with which consumers who have already bought the original version can join in the program to buy the up-graded version using the coupon. This study directly links the supply of the products to be remanufactured to the number of consumers that are attracted to the program. The pricing problem is the profit-maximizing problem for the manufacturer, with the prices of the two products being the decision variables. After solving the problem, the paper aims to study the influence that the size of the coupon poses on the pricing of the two products and on the demand and profit that the upgraded product brings. It is found that even if the two products do not appear simultaneously on the market, there exists an indirect competition between them, since the original product has a residual value in the second period. Although the increase in the size of the coupon may stimulate the demand for the upgraded products created by those who join in the EON program, those who did not buy the original version are excluded the opportunity to buy in the second period. The ultimate outcome may be worse with the EON program for the manufacturer than without. In addition, it is also found that the extent to which the upgraded product is superior to the original product will also affect the relation between the size of the coupon and the overall profit of the manufacturer.