Retech Days: Trade-In Grows amid Regulatory Woes

A couple of weeks ago, CCS Insight had the pleasure of joining the Retech Days circularity event in Berlin. A lot of the themes discussed are well-trodden but hugely important to the short- and long-term health of the second-hand device sector. In this blog, we break down key trends and talking points from the event and analyse changes we believe are needed in the industry to drive the market onto new heights.

Marketing Must Go Deeper Than “Cheaper”

One of the main debates was the role of price and sustainability in driving the secondary market. Many of the contributors agreed that price is the main motivator for consumers, with sustainability very much secondary in their agendas. CCS Insight’s research backs this up, with our Pulse: Connected Consumer survey proving that cost tops environmental concerns in smartphone purchase decisions.

Ultimately, the strength of the secondary market comes down to affordability, particularly in challenging and uncertain economic times, and amid consumer apathy toward device innovations. Momentum for environmentalism among consumers has fallen slightly over the past few years, and we believe few will want to pay a green tax for environmentally sound products. The wider benefits of buying second-hand in the enterprise space — such as reporting on progress with environmental, social and governance initiatives— make sustainability a much more significant driver in this segment.

As part of a wider question about marketing, it’s not just that buying refurbished goods is the cheaper option, it’s also the smarter alternative to buying new. By this, we mean that people can get a device with similar specifications and features to a brand-new model at a fraction of the price. Promoting refurbished goods as great options to low-income, clumsy or eco-conscious consumers ignores a huge swathe of the population that would also find value in an older model.

MediaMarkt was cited as an example for positioning refurbished device lines next to brand-new ones. This sends a message to consumers that the retailer believes the refurbished products are, in many ways, on a par with the new goods. Showing confidence in the products rather than hiding them in the corner helps to build and develop trust with a broader audience early on, not just with those solely looking for the low-cost aisle.

This sentiment is supported by our Pulse: Connected Consumer survey, with 53% of European respondents saying they chose a second-hand device because they could buy one that was as good as new but cheaper, and 45% saying it was purely because it was the cheapest way to buy a device. This gives credence to the idea that consumers are looking for better value rather than just a better price.

Trust Is Built through Honesty and Quality

The second key theme from the event was trust. With device-makers increasingly focusing on setting up their own certified pre-owned offerings, this is becoming a more vital aspect for sales channels to consider. We see the debate boiling down into two essential facets: first impressions and device longevity.

Buyers need to know what they’re getting and what they’ll receive when they open the box. We note a handful of players showing a picture of the exact device being purchased. This adds transparency to the process and lets consumers thoroughly vet their purchase, even online, and fully understand the product.

Someone seeking a flawless product won’t be looking at the second-hand or refurbished segment; overstating a device’s cosmetic or functional quality only serves to push would-be buyers and return customers away. Many players spoke of using double quality control and automated diagnostics, testing and grading to reduce inconsistency.

We note a rise in companies offering three-year or longer — even lifetime — warranties on refurbished devices. We believe the market must trend this way to build and maintain consumer trust. Not only does it signal confidence in the product, but it’ll also alleviate frustrations arising later in the device’s lifetime — the point at which people start to consider what new phone they might want and, crucially, where they’ll buy it. Battery replacements are critical, often cited as the primary barrier to buying second-hand smartphones.

Regulation Will Help to Shape the Market in the Longer Run

Several speakers voiced dismay at the regulatory landscape in Europe. Principal among these issues was the unequal playing field in which businesses believe they’re playing. This is undoubtedly a problem, with inconsistent implementation of the CE mark requirement across the EU and recent cases of VAT fraud particularly noteworthy to panellists. Add to that regulations about the USB-C charging standard, digital product passports and right to repair, and it’s easy to see why players find compliance an administrative burden, especially when non-compliance isn’t perfectly monitored.

We would challenge this view. We don’t doubt that inconsistent application of the law across channels and countries is problematic, particularly to larger players that will naturally find themselves under the microscope more than smaller ones, but we believe a longer-term view to regulation is needed from within the industry here.

Many regulations are issued with the aim of improving the organization, attractiveness and ease of secondary markets in Europe. Businesses that rely on an international supply of devices will, over the longer run, lose out to those that can develop reliable, internal sources of devices through trade-in. Although regulation is cumbersome, it’s rooted in solid principles. Companies that can align themselves to these rules earlier will reap the rewards down the line.

Trade-In Should Be a Primary Focus for Consumer-Facing Businesses

Trade-in is vital for the growth and performance of the secondary market in Europe, given that its heavy reliance on international imports is already creating problems. To this end, we’ve seen notably more interest from retailers, mobile operators and device-makers in creating or improving trade-in schemes over the past year or so.

We see operators as leaders here, able to use mobile contracts to tie consumers into the trade-in well in advance. Forward trade-in is becoming much more common, with Samsung’s new Galaxy Club a recent example of a fixed, or minimum, trade-in value when the device is traded in at a specific point in the future.

Our Survey: Mobile Buying shows that fewer than a third of consumers who buy a new phone in the UK trade it in or sell it, indicating massive potential for this segment to grow as awareness and offerings mature. Evidence from our tracker of the second-hand mobile device market shows that this opportunity will be much greater still in mainland Europe, particularly in the east, where trade-in continues to grow rapidly.

Device rental, subscription or device-as-a-service models are also becoming increasingly popular, particularly in the enterprise space. These will support a much more consistent supply of devices, facilitating aspects such as inventory management.

Universal Grading Remains a Long Shot, But Consumers Need More Information

Inconsistent grading remains a hurdle throughout the industry. Automation alone doesn’t solve this — an individual company’s grading may be more consistent, but across the market each company will still use its own methodology and criteria. Instead of a conversation about universal grading, we believe a debate is needed about how to better provide consumers with the information they need.

Devices should be given a functionality rating, based on a range of criteria, which can be generalized to a total score out of 100 or a specific grade, with specific details available to consumers. There are many automated solutions now available to distributors that offer these abilities.

Cosmetic grading can only go so far — instead, consumers should be able to see the specific device they’re buying. Although this is happening in some instances, it needs to become the norm. Ultimately, these two practices would give consumers maximum transparency about the device they’re purchasing, eliminating a significant proportion of returns.

The Secondary Market Has Good Momentum

Overall, we believe the market is in a good position to build on the momentum it has enjoyed over the past few years. We heard from operators explaining how and why they’re focusing on the secondary market, marketplaces (both business-to-consumer and consumer-to-consumer) on building and maintaining trust, and from retailers on how internal control processes improve reliability. These are all positive steps that illustrate how the industry continues to innovate, learn and adapt as the market matures. We look forward to next year’s event!