Leadership

Another Twist in Behavioral Econ: Trade-Ins More Effective Than Discounts

By Jessica Stillman

Updated on: May 7, 2008 / 5:10 PM EDT / MoneyWatch

The Find: Consumers are more willing to buy a new product as part of a trade-in deal than they would be if they were shopping for it separately -- even if the price was the same.
The Source: Findings from Wharton School student research in an article on marketing problem products.

The Takeaway: You might assume that if you could keep your old car and get a new one for the same price you would with a trade-in, you'd opt to keep the old clunker -- even if just to sell it to a teenager down the block or donate it to charity. But apparently, no. According to new research, even if there is no market for the older, used product, marketers find that offering a trade-in persuades more customers to buy than offering the equivalent discount without the trade-in. Wharton marketing professor Stephen Hoch explains:

"The [customer's] objection is, 'It still works and I haven't gotten my money's worth.'" Rolling the perceived value of the old item into the new purchase seems to nullify that objection.

Besides the classic example of cars, Hoch says that trade-ins have also been used to persuade customers to buy the latest in digital cameras despite the fact that their old camera is still working fine.

The Question: What other products could see a boost in sales if they were offered as part of a trade-in deal?

(Image of vintage Gremlin ad by jbcurio, CC 2.0)