Retail Resources

Trade-In Insights from a Trade-In Insider

Feb 02, 2015 — Brandon DeJong
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By Brandon De Jong, VP of Marketing, Phobio

During my decade in indirect wireless retail, I've seen the industry from both the retailer’s and service partner’s perspective. Prior to working with Phobio, I generally viewed retail trade-in as a commoditized entity where those who offered the top prices reigned. I've learned a lot since then.

The primary eye-opener was understanding how to assess the true value of a trade-in service. The landscape of trade-in has changed tremendously in recent years. Trades are being heavily marketed by carriers and playing a more significant role in the consumer shopping experience. This trend and advances in the trade-in industry are creating more opportunities for retailers to extract the most value out of their trade-in service. However, the true value of trade-in can be unclear if you’re not asking the right questions.

Without a doubt, questions about pricing are the most common question retailers ask. Coming from retail, I’m familiar with the inclination to ask, “What’s an iPhone 5S trade worth?” thinking that this question could provide good insight into a trade-in service’s value. In truth, the potential value chain of a trade-in service only begins with competitive device pricing. To judge the real value of a trade-in service, you need to look at the success metrics of the trade-in service as a whole.

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All other service features being equal (i.e. device shipping, training, support, reporting tools), there are 3 main success metrics of retail trade-in services:

  1. Pricing Across Device Condition Categories
  2. Inspection & Adjustment Rates
  3. Average Trade Revenue per Door

Pricing Across Device Condition Categories

It’s important to ask about pricing for all device condition categories. Your sales staff will naturally want to give their customer the most value for their old devices. After all, the more value the customer receives, the more they have to spend in your store. No matter the condition of the customer’s device, you should be able to award a fair and competitive value for it. Better pricing on all condition levels helps dissuade your sales staff from inflating the value of customers’ devices.

Typically, the more condition categories that exist, the larger the variance there will be between top and bottom pricing. Pay attention to this gap. The larger the chasm, the more limitations and requirements there will be in order for devices to be considered in best condition, and the less likely your customer will be to receive top trade-in value.
Subjective condition levels, like “Good” versus “Fair” or “Poor”, increase the likelihood that Sales Reps’ will make errors when determining device condition. If errors occur, those trades will be downgraded to lower grade devices and lower prices. This drop from top tier pricing to lower level pricing can have a costly, negative impact on your bottom line. Simple, objective device conditions help ensure the customer receives the correct value and prevents discrepancies.  

Once you know how many condition categories exist, inquire about device distribution across these categories. If the top tier has a very low percentage, it could be due to harsh grading scales and rigorous inspection criteria. If a lower tier has a very low percentage, it could be because the prices are too low to be enticing to customers.

A strong trade-in service has competitive pricing on all tiers, not just top tier devices. Assess pricing mix across all conditions and request that your trade-in partner provide a Competitive Pricing Index showing how their overall pricing compares in the marketplace.

Inspection & Adjustment Rates

After inspection, devices that were traded-in under the incorrect model or condition are adjusted, and this “adjusted” price is reflected in the payment sent to the retail partner. Frequent “adjustments” or “discrepancies,” and drastic price differences between condition tiers will create a volatile Adjustment Rate that could mean significant revenue loss.

High Adjustment Rates are a red flag, indicating that your trade-in service’s pricing and inspection guidelines need to be reviewed. Overly stringent qualifications or tremendous gaps between low to high tier pricing are likely to blame. If a trade-in company’s adjustment rates average in the double-digits, the problem is most likely their process and a sign that they need to improve their pricing, condition qualifications, software, or training.

Historically, trade-in companies have justified high adjustment rates by awarding commissions to cover discrepancies and minimize financial loss for the retailer. In truth, trade-in services should be optimized so that commissions can be a revenue driver for your company--not merely a method to cover service errors.

Average Trade Revenue per Door

Ultimately, revenue is king; the average trade revenue per location is the most important dollar figure you can review to assess whether you are partnered with the right trade-in provider. Competitive pricing across all categories, combined with low adjustment rates will lead to strong trade revenue earnings per location.

Phobio is a Preferred iQmetrix Partner, providing trade-in services to retailers through proprietary Safetrade trade-in software. Phobio is the only trade-in service that offers a 100% Plan with 100% payout on customer values + 100% commissions with competitive device values with no adjustments or discrepancies.  

Contact Phobio for more information: info@phobio.com

Topics: Trade In, Integrated Solutions

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