Optimal non-exclusive trade-in rebates design for a profit-maximizing company

• The trade-in policy considers both the company’s products and those of competitor. • Optimal trade-in rebates are derived for different companies’ products. • Offering higher trade-in rebates depends on its pricing strategy and competitor’s. • Impacts of customer’s perceived value of old-version products on trade-in are explored. The trade-in program is a common marketing strategy adopted by companies to encourage customers to return their used products in exchange for a discount or rebate on the purchase of new items. A trade-in program can significantly boost sales by lowering customers’ purchasing costs while enabling the collection of returned products for recycling or remanufacturing. However, it also introduces additional operational and financial costs. Therefore, the company must carefully balance profit gains with associated costs to ensure that the trade-in program remains economically viable. This paper explores the company’s optimal non-exclusive trade-in program, under which both existing customers and competitors’ customers can trade their on-hand products for new ones. The innovation level of new generation products, the previous pricing strategy of the company and its competitor, the durability of the products, and the relative perceived value of the old generation products by customers are considered in the paper. The results show that the optimal trade-in strategy design depends on the previous pricing strategy, and setting high trade-in rebates is not always optimal to maximize profit. Moreover, whether the company should provide a higher trade-in rebate to its existing customers depends on the customers’ perceived value of the company’s past products compared to competitors’ offerings, along with both parties’ past pricing strategies, and the trade-in program does not always benefit the environment.