Selling remanufactured goods offers an excellent opportunity to increase profitability and recycle used products. In addition, remanufactured goods are generally cheaper to produce and therefore provide higher profit margins. However, despite the advantages of selling remanufactured goods, research demonstrates that it’s essential to strategically balance the sale of new and recycled goods, particularly when sold via a salesforce.
"New products are typically discarded by consumers before all of their value is used. Or, even if their value is completely utilized, it's still possible to refurbish them to create new value. As a result, firms can easily create new value by remanufacturing used goods. This can be a win-win situation that recycles used goods and enables firms to produce a product at lower cost," explains Sumitro Barnerjee, an associate professor of marketing at Grenoble Ecole de Management who recently co-authored a study on the subject of salesforce incentives and remanufactured goods.
The complexities of selling remanufactured goods
In general, the cost of remanufacturing products is negligible as compared to the cost of a new product. However, despite the appeal of low production costs, remanufactured goods require companies to consider several factors to implement a successful strategy. "Our research demonstrated that despite the higher profitability of remanufactured products, the incentives offered to sell these products can lead to a situation where a firm is completely dissuaded from selling remanufactured products," adds Sumitro.
The sale of remanufactured goods requires that a substantial number of new products be sold in the past, otherwise companies would have no products to remanufacture. As a result, the sale of new products is essential to continue the production of remanufactured ones. However, Sumitro explains that: "When sales incentives are offered for both products, a substitution effect may increase the sale of remanufactured goods. This can reduce the availability of remanufactured products in the future and therefore may have a negative impact on profits in the long run."
One way to mitigate this adverse effect of increased substitution is to ensure sufficient sales volume for new products. This can be achieved by offering lower incentives for the sale of remanufactured goods. It's important to remember that the time spent by salespersons selling a good is also a cost. "The additional cost created by the time spent selling a remanufactured good can actually create a situation in which the sale of such goods is no longer profitable." This is an important insight for managers faced with external or internal pressure to "go green" and sell more recycled goods.
A strategic approach is essential
"Overall, sustainability, CSR or selling remanufactured goods can all be excellent means to improve company profitability and solve environmental issues. But, it's essential for managers to think carefully about their specific situation. There's no single solution that fits all companies. You can definitely create a win-win situation with remanufactured goods, but the strategy has to be carefully crafted to account for many factors," concludes Sumitro.
3 tips to improve your strategy
- Ensure you sell enough new products to have a consistent supply of remanufactured products.
- Adapt your sales incentives to encourage the right balance between the sale of new and remanufactured goods.
- The time spent by a salesperson selling remanufactured goods is a real cost. Check that this cost does not outweigh the profits of selling remanufactured goods.