The Effect of Product Quality on the Pricing of New and Remanufactured Short Life-cycle Product

Abstract

Remanufacturing is one of the recovery process that has become significant among many attempts to mitigate the landfill exhaustion, especially from mountain of wastes that come from short life-cycle products disposal. However, remanufactured product are often perceived to have lower quality compared to the new one. There are misconception about remanufactured product and lack of knowledge about its characteristics. On the other hand, several studies show that price and product quality have positive relationship. This paper investigates the effect of product's perceived quality on the pricing decision, to maximize the profit of the retailer and the manufacturer. We develop pricing decision model for new and remanufactured short life-cycle product in a closed-loop supply chain consists of a manufacturer and a retailer, where the manufacturer is a Stackleberg leader. We find that lower product's perceived quality would decrease the retail and wholesale prices of new and remanufactured products, but does not affect the new product's sales volume significantly. Also, the speed of change of demand influences the optimum total profit.