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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Principles of Marketing, Core Marketing, Introduction to Marketing Management; Brand Management; and Consumer Behavior
Miller, Chadwick J., Michael A. Wiles, and Sungho Park (2019), “Trading on Up: An Examination of Factors Influencing the Degree of Upgrade: Evidence from Cash for Clunkers,” Journal of Marketing, 83 (1), 151-172.
The product line-ups of durable goods firms are often created to provide a clear upgrading path as consumers make replacement decisions. Consumers are able to upgrade a little (i.e. spend a bit more than last time) or a lot (i.e. spend substantially more). However, the factors impacting the degree of such vertical moving up have received limited scholarly attention. In particular, little remains known about how trade-in characteristics and the marginal costs-benefits of the new purchase influence the degree of upgrade. Utilizing 320,000 Cash for Clunker automobile transactions, the authors provide the first examination of how mental accounting surpluses from trade-in ownership time and trade-in windfall, in addition to brand loyalty, affect the degree of upgrade. The authors find that trade-in ownership time and brand loyalty enhance the replacement’s degree of upgrade. However, trade-in windfall size has a negative effect—revealing the downside of this common promotional practice. Two experiments and additional dealer data indicate this finding is robust to different economic conditions. Thus, these findings provide valuable new guidance for durable goods firms to facilitate the degree to which consumers upgrade.