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Trading on Up: An Examination of Factors Influencing the Degree of Upgrade: Evidence from Cash for Clunkers

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Large trade-in incentives negatively impact the size of upgrade consumers choose. Ownership time has a positive relationship with the size of upgrade consumers choose. Brand loyal consumers upgrade to a larger degree than non-loyal consumers. Advertising magnifies the size of upgrade that brand loyal consumers choose.

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Trading on Up: An Examination of Factors Influencing the Degree of Upgrade: Evidence from Cash for Clunkers

  1. 1. From: Factors that Influence Upgrading Durable Goods at Re-Purchase A study of vehicle trade-ins Miller, Wiles, and Park (2019)
  2. 2. From:From: When consumers make a re-purchase, they can upgrade, downgrade, or remain neutral depending on how the replacement purchase compares to the previously owned good. Miller, Wiles, and Park (2019) 2010 Honda Accord MSRP = $21,055 2018 Chevrolet Spark MSRP = $13,220 2018 Honda Accord MSRP = $23,570 2018 Acura TSLX MSRP = $33,000 Replacement Purchases Neutral Trade-in New Purchase Options
  3. 3. From:From:  Trade-in characteristics:  How long the previous product was owned.  Trade-in incentives  New purchase characteristics:  Perceived switching costs: Brand loyalty  Perceived benefits: Characteristics of the new purchase (styling, number of seats, quality ratings, etc.)  Aspects of the transaction controlled by marketers: Promotional efforts, such as incentives and advertising. What influences consumers upgrade decision? Miller, Wiles, and Park (2019)
  4. 4. From:From:  A study of over 300,000 trade-in transactions from “Cash for Clunkers”  Data matched with:  Kelley Blue Book Used Car Values  JD Power  Consumer Reports  Gross income  Brand advertising spending Research study Miller, Wiles, and Park (2019)
  5. 5. From:From: 2010 Honda Accord MSRP = $21,055 Trade-in Ownership time Brand Loyalty Brand Loyalty x Advertising Trade-In Incentives Results: What influences upgrading? Miller, Wiles, and Park (2019) 2018 Chevrolet Spark MSRP = $13,220 2018 Acura TSLX MSRP = $33,000 Upgrade Downgrade Relationships
  6. 6. From:From:  Ownership time: As ownership becomes exceedingly long, consumers build up a positive mental account balance that they feel they can use to splurge in the next purchase. Thus, as consumers use their previously owned durable goods for longer, they upgrade to a larger degree.  Brand loyalty: Brand loyal consumers upgrade a larger degree than non-loyal consumers.  Brand loyalty x advertising: Advertising spending magnifies the degree of upgrade that brand loyal consumers choose.  Trade-in incentives: When trade-in incentives become much larger than what the trade-in is worth, consumers save the extra money and downgrade. Results Miller, Wiles, and Park (2019)
  7. 7. From:From:  Although researchers have shown trade-in incentives accelerate replacement purchases, managers should be hesitant to use them for two reasons. 1. Consumers view large trade-in incentives as assets that they prefer to keep rather than spend. Thus, they upgrade to a lesser degree than with small trade-in incentives. 2. Trade-in incentives shorten ownership time (by accelerating a repurchase) and thus negate the positive impact of ownership time on upgrading.  Firms can use ownership time as a segmentation variable to identify consumers who will be more inclined to upgrade.  Firms should maximize their efforts to create brand loyalty within their customer base because these consumers tend to upgrade more.  Further, if firms can find additional ways to advertise to loyal customers they can magnify the size of the loyal customers’ upgrade. Recommendations Miller, Wiles, and Park (2019)

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