Trade-In program, outsourced or internally developed?

Should you create your own trade-in (TI) program or buy a commercial solution? The answer, of course, is ‘it depends’. Let’s see if I can help you navigate through some of the questions to ask yourself.

First, we need to define what a TI program is. At it’s core, this is an opportunity for a consumer to return an old product and get some value out of it. Here, we will assume that the goal of the TI program is to promote new product sales: returning an old product helps offset the cost of a new one. By the way – these two products are often of the same kind (e.g., old phone / new phone), but not always (e.g., old tablet / new phone).

Second, what do I mean by “outsourced”? There are at least 5 large components in any TI program, which we can outsource alone or together:

  1. User Interface / User Experience (abbreviated into UI/UX). There is no business without customers so a poor UI/UX will yield disappointing results. This is a huge topic of its own, and will be best tackled in a future article
  2. Program creation itself: business decision, financial modeling
  3. Reverse Logistics process, or how to physically bring the old device back to the triaging facility
  4. Triaging: testing the device to confirm the type of product, its functional and cosmetics characteristics. This will have a very significant impact on the resale value, and thus on the overall program economics. By the way, there is no consistent grading standard today but most players generally agree to use an A-D scale for the cosmetics and a system of “+” or “-” for functionality. Again, we could write books on this topic
  5. Asset monetization: Do you resell the product as-is or refurbish it? If you refurbish, to what grade? Should you resell via auction (easier, but lower recovery), via an ecommerce platform such as eBay or Amazon, or even in retail or insurance programs?

So, we have now reviewed the definitions. Let’s get back to my earlier question: Should a company outsource main components or try to implement them internally? Since my ‘it depends’ answer above wasn’t particularly helpful, I propose we use a simple who/what/why/where/when/how framework to address it:

  • Who are you targeting? Are these end consumers (b2c) or businesses (b2b)? B2C transactions would typically be simpler (no lengthy contract negotiation or bespoke solution) but you also need to convince each consumer individually, whereas B2B may be easier and quicker to scale when a single agreement can bring $millions in sales
  • What are your current differentiators in the market, what makes customers want to work with you vs. a competitor? All else equal, a strategic need to get closer to the end consumer (i.e., mostall of us) likely pushes you towards a higher degree of control on the end solution
  • Why are you offering a trade-in program, what is your ultimate goal? Earlier, I hypothesized that most programs were designed to increase new product sale. Other reasons might apply too:
    • Do you want to prevent competitors from entering the market with cheaper products?
    • Are you looking to bring new clients into your product universe and help them upgrade to more premium products over time? This is like BMW wanting young professionals to buy a 1 series, before moving to a 3 series when they become managers and 5 series when they are executives, unless they get an X5 for the kids family dog. Ok, trite example but you get the picture
  • Where is the trade-in program offered? On your own website (e.g., OEM), on a partner’s website (e.g., Carrier’s website), or in retail stores (e.g., yours, or Carrier / Retailer stores)? This will drive UI/UX and reverse logistics requirements in particular – and your solution will need to be particularly flexible if the answer is “all the above”
  • How strong are your internal capabilities? Large corporation often have well developed capabilities in IT, program management and operations, as well as the actual capacity to take on a complex development. Instead, a smaller player might decide to protect limited resources and express a preference to outsourcing

We can place the answer to each of these questions on a continuum, with no right or wrong answer. When we designed the first trade-in program at Samsung for example, two decisions quickly became clear:
– First, we would want to develop our proprietary UI/UX and modeling solutions as well as near-complete control of the asset monetization piece;
– Second the reverse logistics and triaging functions would be best outsourced to a trusted partner (or two – I am a huge proponent of the champion / challenger model)

Some of these answers can change over time by the way, or even be different for different products. For example, I may decide to outsource reselling for laptops (nearly infinite range of configurations) but keep it in-house for phones and tablets (comparatively simpler).

Before we wrap up, I want you to think about one more thing. A positive TI experience is great for business but there’s a dark side as well: if your UI/UX is confusing, or worse if the triage outcome is not what she expected (consumer sends a “great” tablet, but triage decides it was “broken”), this can lead to a very adverse experience. Even companies with solid reputations like Apple can sometimes get burned (there was a TheVerge article on that topic in mid-April).

No self-respecting company would purposely try to “cheat” the consumer, but errors do and will happen – and how stakeholders (your consumers, media, employees, even shareholders) perceive your response will impact the viability of the program… or even your career. Outsourcing a solution means you have a neck to choke, but insourcing means more control and potentially faster resolution.

There were only a couple of good, stable front-end commercial solutions a few years ago. Today, this space is getting more crowded and everyone has had to raise their game. We are even starting to see some good one-stop-shop solutions. Over time, I expect the answer will trend towards more outsourcing for all but the very largest players. Today though, the decision process is often still complex with no clear cut answer.

This is a big decision. Don’t let someone’s agenda dictate your strategy and go-to-market, and take your time weighing the pros and cons.

3 thoughts on “Trade-In program, outsourced or internally developed?

  1. […] we discussed in a previous article, most Trade-In (TI) programs today are designed to drive new device sales. Other objectives include […]

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  2. […] reviewed different trade-in solutions and features recently. Today, let’s move to the other end of the process and consider the process […]

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  3. […] process is significantly more complicated than ones detailed in prior articles (e.g., outsourcing decision; asset monetization). There are a few entry points possible. You will need to iterate – thank […]

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