Journal of the Peoples University of Bangladesh,

ISSN: 1812-4747, Volume 6, Number 1, July December: 2013

Developing Secondhand Market in Expansion of

Total Market of an industry for Durable Goods
-By Dr. Uttam Kumar Datta
Abstract:
This paper has examined how a consumer of durable goods can replace new and latest products to maximize
his/her satisfaction through selling old-age durable goods to a secondhand marketplace. On the other hand,
how lower middle, lower and working class people can enable to purchase a costly product at different levels
of price. In this way, through developing secondhand market and marketplace, one industry can increase the
total market. Therefore, people those who have lower purchasing power; they can purchase their expected
durable goods. This study proposed the durable goods manufacturing industries to set up secondhand market
place or encourage the manufactures and middleman like retailers to develop this type of marketplace, from
where lower income group can purchase their product easily. This process will help the marketers of durable
goods to increase their market growth rate. Thus, the existence of a secondhand market for durable goods can
reset the price of used durables goods and encourage the durables goods replacement purchasing. The value
of the durables is decreasing along with older-age. So, price should be changed based on older age of the
goods in the secondhand market. The decreasing prices of durables goods enable the lower income group to
have different types of goods. This new aspect of marketing can also maximize the GDP growth rate and total
consumption of a country.
Key words: Secondhand Marketplace, Total Market, Durable Goods, Consumption, Economic Growth.

Introduction:
Actually, every durable product provides services for a long time to satisfy a specific need or
want. These products are costly and people are purchased infrequently. Some durable goods are
purchased once or twice in a human lifetime. Even, most of these products are used by
generation to generation such as private car, motorcycle, home furniture, different type of
electronic goods, properties, ornaments etc. Large numbers of these products are purchased by
the upper and upper middle class people in every society in every country because of their higher
purchasing power. But the intensive needs and wants of these products are available in the
middle and lower middle class people in every society throughout the world. They wait to buy
these types of products at a lower cost. Sometimes, the marketers target these classes as the new

segment markets through their offerings. Very often it is impossible to produce at a lower cost to
match the lower markets for technical limitation. Then the marketers bound to leave these market
opportunities.
In a certain period of time, current or available market is limited and penetrated by the industry
competitors. Repeat purchase did not occur of durable products in the penetrated market till the
last utility of the existing goods. The growth rate of total available market is slow because it
depends on enough income. Challenging competitors of durable goods frequently change their
model to attract the available market by using latest technology. People those who are overtaking
the middle class line through new achievement they are attracted by new models and new
technologies. This group is limited and the customers of durable goods in a serve market. But
once upon a time, the serve market again filled by the industry competitors. In this way,
currently available market transformed into penetrated market. Marketers may attract this
penetrated market by offering new model and stylist durable goods if they develop secondhand
marketplace considering the lower purchasing powered market of concerned products.

Therefore, penetrated market is influenced and attracted by the new offerings, but their existing
product durability interrupted their repeat purchasing. This situation has two aspects; firstly, a
large number of middle and lower middle class people wants these durable goods as secondhand
products at lower cost. Secondly, if the penetrated market would get available secondary
marketplace where they can sell their durable goods at a reasonable price, then they could repeat
purchase. As a result, the total market would be expanded for durable goods and production
would be increased. On the other hand, lower purchasing power people could purchase their
expected products from the secondhand marketplace. These opportunities may be utilized by the
marketers of durable goods. They can set up separate retailing shops at different geographical
area where secondhand durable goods will be purchased and resold in a planned way. The plan
may be based on product performance durability. The selling price will determine base on
manufacturing date and using duration or old-age of a product. Customers from penetrated
market, those who want to sell their existing durable goods to the secondhand market, they call
the retailers for home service. Retailers will purchase from the households based on
manufacturing date and existing utility of the concern product. As a reseller, retailer then reset
the price and displays the products at his/her showroom for resell based on durability and

manufacturing date. Warranty services can add new charm of these markets. This aspect of
marketing should be studied to ensure the economic growth and social welfare.

Findings of the study:

Literature review:
Many authors have documented the presence of active secondhand markets for used durable goods and
equipment. Here some of them are cited and analyzed for literature review.

Simon P. Anderson & Victor A. Ginsburgh, (1994) Consumers have heterogeneous tastes for
new and used goods, and second-hand markets involve transactions costs. A monopoly seller
may gain or lose from the existence of a second-hand market: locally it may prefer lower
transactions costs, but globally, it may prefer high transactions costs so it can strangle the used
market. The monopolist uses the second-hand market as an indirect device to achieve a form of
second-degree price discrimination. If the monopolist can control the quality of its product when
used, it may wish to deteriorate this quality to worthless, or else to have it as good as new
Konstantin Kogan (2011) we consider a monopolistic supply chain consisting of a manufacturer
and a retailer (service provider) who in addition to selling new durables, buy and resell used
ones. The supply chain provides services for both new and used goods. Accordingly, consumers
incur service charges for all types of goods. This study is motivated by the modern trend in cell
phone businesses where retailers commence buying used phones from customers willing to
upgrade their phones. The used phones are then refurbished and resold along with the services.
The question that this trend gives rise to is how the interaction with the secondary market affects
the performance of the supply chain in terms of its intra-competition and thereby its profit. We
show that for a wide range of service rates, the second-hand market coordinates the supply chain
by either reducing the double marginalization effect or by offsetting it with extra profits gained
by servicing the used goods. This, however, does not imply that both parties always improve
their profits. Furthermore, we find that when the service rates are low, the supply chain would be
better off if the goods were not durable thereby precluding the very existence of the second-hand
market.
Natasha E. Stroeker & Gemit Antonides (1997) In this paper, bargaining processes in the
second-hand market for consumer durables will be investigated. The principal aim of this study

is to empirically estimate the predicted negotiated price, based on the reservation prices and the
corresponding probabilities of reaching an agreement as perceived by the potential buyers and
sellers. To predict the outcome of the bargaining process, we distinguish two curves: the buyers'
curve, which shows the buyers' perceived probabilities of prices acceptable to the seller(s) and
the sellers' curve, which does likewise for the sellers. The intersection point of these two curves
indicates the predicted price at which the joint probability of reaching an agreement is at a
maximum. Alternatively, a predicted price has been computed from the intersection of the
cumulative distributions of buyers' and sellers' reservation prices. Finally, the predicted prices of
different types of second-hand goods are compared to the prices realized on the market, called
observed prices.
G.N. Chattopadhyay & D.N.P Murthy (2000) for second-hand products sold with warranty,
the expected warranty cost for an item to the manufacturer, depends on
1. the age and/or usage as well as the maintenance history for the item
2.the terms of the warranty policy.
The paper develops probabilistic models to compute the expected warranty cost to the
manufacturer when the items are sold with free replacement warranties. Warranty cost analysis
for second-hand products.
A.Z M.O Hussain & D.N.P Murthy ( 2000) The expected warranty servicing cost is critically
dependent on the reliability of the product. One way of improving product reliability is through
redundancy but this is achieved at the expense of increased manufacturing cost. Redundancy is
worthwhile if the reduction in expected warranty servicing cost exceeds the increase in the
manufacturing cost. This paper examines optimal strategies with quality uncertainty where
nonconforming items have inferior performance characteristics relative to conforming ones. It
also examines the effect of life testing on the optimal strategies.
Ming J. Zuo, Bin Liu, D.N.P. Murthy (2000) In this paper we study a warranty servicing
policy for a class of multi-state deteriorating and repairable products. The manufacturer's
decision to repair or replace a failed item depends on two parameters, the deterioration degree of
the item and the length of the residual warranty period. We examine the optimal value of these
two parameters to minimize the manufacturer's expected warranty servicing cost per item sold.
Miller Jr. H.L (1974), The author of the article on killing off the market for used textbooks and
the relationship between markets for New and secondhand goods has asked a question Are

secondhand copies of textbooks a drain on publishers and author profits? Publishers

representatives have no doubts on the matter. He has also talked with several about the
problem and about some companies efforts to reduce secondhand sales. One is said to have
aimed for instant destruction by including answer pages in books to be torn out and handed in
to the instructor, decreasing the value of used copies. That the publishers representatives have
some support from professional economists is clear from this statement in the preface to widely
used text book in price theory: Since everyone knows the basic reason for a revised edition is to
kill off the existing used book market, it would be idle to suggest otherwise.
Benjamin, D.K, & Kormendi, R.C (1976), This author asked two questions, world competitive
producers of a durable good favor legislation restricting the markets for used various of the
durable, thereby reducing the economic life of the good? How can it be explained that producers
of a good of a given durability will sometimes devote resources to limit the extent of resale
markets for used versions of the durable? In the post economists have given quite different
answers to these questions. There are two main views, on the one hand, used various of the
durable are viewed as substitutes for the newly produced durable goods. Thus, if the market for
the used durable could somehow be eliminated or to some extent restricted, the result would be
an increase in the demand for the new durable and hence greater wealth for producers.
Waldman, M (1996), This article considers a durable goods monopolists choose of price and
durability in a setting where durability in a setting where durability choice controls the speed
with which quality deteriorates. This article derives three main results: the price at which old
units trade on the secondhand market limits what the firm can charge for new units, the firms
chooses a durability level that is below the socially optimal level, and the incentive to reduce
durability can be sufficiently severe that the monopolist eliminates the market for secondhand
goods.
Anderson, S.P & Ginsburgh, V.A(1994) Consumers have heterogeneous tests for new and used
goods, and second-hand markets involve transactions costs. A monopoly seller may gain or lose
from the existence of a second hand market. Locally it may prefer lower transactions costs, but
globally, it may prefer high transaction costs so it can strangle the used market. The monopolist
uses the secondhand market as an indirect device to achieve a form of second degree price
discrimination. If the monopolist can control the quality of its product when used, it may wish to
deteriorate this quality to worthless, or else to have it as good as new

Porter and Sattler (1999) The consumption value of a durable good diminishes as it ages due to
physical deterioration and consumers' preference for the new. We develop a model of consumer
specialization and trade in the market for used durables based on imperfect substitutability.
Imperfect substitutability across vintages is reflected in a declining market price over time.
Heterogeneous consumers maximize utility by specializing in durables of differing ages
Fernandez (2000), Observes that a large fraction of appliances sales are accounted for by
replacement that usually takes place prior to irreparable failure. While these pieces of evidence
may correspond to somewhat unrelated phenomena all of them raise questions on the role
secondhand markets in understanding the behavior of durable consumption expenditures as well
as some forms of equipment purchases.
John W. Mayo and Scott Wallsten (December 2011) In the face of the many economic
benefits of secondary markets in the economy and the large size of these markets it would seem
that they would attract attention by economists, businesspeople and policymakers alike. The
reality, however, is that policy discussions of secondary markets are much more the exception
than the rule. Occasionally, policy debates arise regarding the economic welfare associated with
either private or public restrictions on secondary market transactions.
Jeffrey D. Shulman & Anne T. Coughlan (5 June 2007) The existing literature on channel
coordination typically models markets where used goods are not sold, or are sold outside the
standard channel. However, retailers routinely sell used goods for a profit in markets like
textbooks. Further, such markets are characterized by a renewable consumer population over
time, rather than the static consumer population often assumed in prior literature. Goolsbee
(1998) Documents mass sales of Boeing 707s to the developing world after the plane was
effectively retired from use by USA airlines.

Research gap
It is clear from the earlier sections of literature reviews that many researchers have been
conducted in touch of secondhand market. In the analysis of the related literature review, Simon
P. Anderson & Victor A. Ginsburgh, (1994) the monopolist uses the second-hand market as
an indirect device to achieve a form of second-degree price discrimination. If the monopolist can
control the quality of its product when used, it may wish to deteriorate this quality to worthless,

or else to have it as good as new Konstantin Kogan (2011) we consider a monopolistic supply
chain consisting of a manufacturer and a retailer (service provider) who in addition to selling
new durables, buy and resell used ones. The supply chain provides services for both new and
used goods. Natasha E. Stroeker & Gemit Antonides (1997) In this paper, bargaining
processes in the second-hand market for consumer durables will be investigated. A.Z M.O
Hussain & D.N.P Murthy ( 2000) The expected warranty servicing cost is critically dependent
on the reliability of the product. Miller Jr. H.L (1974), indicated, how secondhand market is
negatively affect the firsthand textbooks market. The aim was an attempt to destruct the
secondhand market for the greater interest of the publishers. But some professional economists
clearly indicated the widely used secondhand books in price theory. He did not argue that how
secondhand markets of textbooks are increasing the reader rate and expanding the total market of
textbook industry. The author of the article, Interrelationship between markets for new and used
Durable Goods Benjamin, D.K, & Kormendi, R.C(1974) aimed to eliminate or somehow
resist the secondhand market to extend the market of new durable goods. He has given more
emphasized on the wealth of the durable goods producers in absence of secondhand market. In
fact, secondhand market may increase the total market of an industry of durable goods.
Waldman, M (1996), said that the price should be reset in secondhand market based on the older
age of the product. He did not mentioned how secondhand market can be a new segment in a
saturated market of an industry. Anderson, S.P & Ginsburgh, V.A(1994) A monopoly seller
may gain or lose from the existence of a second hand market. Hence, the author said that one
user of a secondhand product may sell the older-age or used product in a secondhand market at a
profit or lose. Goolsbee (1998) Documents mass sales of Boeing 707s to the developing world
after the plane was effectively retired from use by USA airlines. Here the used durable plane is
selling after retired. Similarly, a large number of studies have been conducted throughout the
world which cited earlier in the literature review of this article. But it is observed that no
researchers have not yet been attempt to conduct research how developing secondary
marketplace, manufacturers can target a new secondhand market segment to expand the total
market of an industry of durable goods.

So, here is a scope of research on Developing

Secondhand Marketplace in Expansion of Total market for Durable Goods.

Methodology of the study:

The identified problem of the research is how secondhand market can be the new market
segment through developing secondhand marketplace of the manufacturers in expansion of total
market of an industry. This is an exploratory research in nature. Both secondary and primary data
have been collected to conduct the study. Secondary data has been collected from different
reputed journals for literature review. The qualitative data also have been collected on 25
executives from distinguished business organizations who were the participants in Post-Graduate
Diploma in Marketing Management by conducting a focus group discussion from Bangladesh
Institute of Management, Dhaka. The question was how developing secondhand marketplace
may attract the secondhand market segment in expansion of total market of an industry. The
sample has been selected by using convenient technique under non-random sampling as majority
of them were working in the post of marketing executives. Most of the participants represented
some business firms of durable goods. Two marketing executives of Nitol Motors Ltd. And
Ranges Automobiles played an important role in the discussion as they directly or indirectly
involved with secondhand markets. The data has been recorded by using a digital video camera.
Theoretical explanation used to analyze the all qualitative data. The findings of the focus group
discussion have been explained in the given model and explanation.

Objectives of the study:

The objectives of this study are to:
o Examine the real existence of secondhand markets of durable goods.
o Identify the economic benefits of secondhand markets.
o Maximize the total market and consumption of different types of durable goods.
o Make available the durable goods to the lower purchasing power people.

Focus group Discussion

A focus group discussion has been conducted on 10-04-2014, room no. 110 at Bangladesh
Institute of Management about the title of the study. 25 participants attended the discussions who
are the marketing executives from distinguished business organizations in Bangladesh. The
author of this article played the role of a moderator. At the starting point, he disclosed the
objective of the article to the participants of the focus group. The moderator discussed about the
different levels of market in relation to the article. He defined the total potential market and

potential market from the view point of marketing text. He addressed that potential market is
divided into four kinds; they are penetrated market, served market, qualified available market,
and available market. Then he asked the group to define secondhand market in their own words.
Some participants of the focus group defined the secondhand market as the lower purchasing
powered people who are waiting to buy a durable good at a lower cost. Somebody said that
secondhand market as a place where lower purchasing powered buyers go to buy some durable
goods at a lower cost. Then the moderator asked the participant to know the existence of
secondhand market in Bangladesh. The group cited some example of secondhand market like
Bicroy.com, Sell Bazar, Car Hat, Picasso, Well-ex, Freeknock.com etc. Letter, the moderator
asked to the group to know the benefits of developing secondhand market. The focus group
make consensus that in developing secondhand market, the total available market or current
market of an industry of durable goods would be increased. As a result, total consumption will be
increased. Then marketer would be able to sell more than the existing current market and thereby
GDP would be higher. An executive of Nitol-Motors, Bangladesh gave in his opinion,
secondhand market also enhancing the brand image because of long-lasting durable goods.
Another executive of Ranges Automobiles Ltd, Bangladesh said that sometimes a buyer made
decision to buy a new car by considering the secondhand saleable price. That means, after using
a new car for a period of time, what would be returned price which will help the buyer to buy a
new model car in future. In that case, the price of a new car depends on the secondhand price. In
this connection, the moderator asked the participants how the price should be determined of
secondhand durable goods. The participants said in their opinion that the determinants of pricing
for secondhand durable goods should be the firsthand purchasing date, using period, older-age,
present condition of the product, price of the firsthand product, demand of secondhand durable
goods, number of lower purchasing power people etc. The moderator addresses a concept of
determining the justified price setting of a durable product. He shared a new formula to set the
price of a durable secondhand product that is Price of secondhand durable product = The
firsthand price (The firsthand price Average durability and reparability) Number of
using years. For an example, the firsthand price of a television is 50,000 Tk. and the average
durability of the television is 8 years + serviceability 2 years, and number of using year or older
age is 5 years, what will be then the settle price? According to the proposed formula, the price
would be 50,000 (50,000 {8+2}) 5 = 25,000. The focus group agreed the formula for

setting the price when secondhand durable goods would be sold in a secondhand marketplace.
They commend on this settle price as justified enough. But manufacturers should determine the
average durability and print it on the product and label at the time of firsthand selling. The focus
group said that recently in Bangladesh there are some durable and semi-durable goods are selling
and buying in a number of web-sites and established some marketplaces for private car,
furniture, motor bike, bus, track, machinery equipments and laptop. For example, two car hats
have been set-up at Rajdhani High School, and Lalmatia playground, Dhaka. Every Friday a
huge number of cars are selling in these secondhand markets. The moderator then asked who
should be responsible to develop secondhand marketplace for all types of durable and semidurable goods to expand the total market of an industry. The marketing executive of Nitol Motor
and marketing executive of Rangs Automobile Ltd said that manufacturers or sole distributors
should take this initiative to develop secondhand marketplace to expand their total market. On
the other hand, independent retailers may open showroom with warranted service centers in the
different parts of the country. All city corporations may develop such marketplace where
independent retailers make available all kinds of durable and semi-durable goods with certain
period of warranty. They also said through developing such second hand market places, lower
purchasing people would be able to improve their consumption and living standard. Any country
may increase her GDP growth rate by entering into the new segment of secondhand market in
developing secondhand market places. In the context of Bangladesh, Internet based or website
based second hand market is not being able to reach the major part of second hand market lack of
their IT knowledge. So that physical existence of second hand market place development may
expand the total market as well as web-site based secondhand markets. He explained the thought
on the given figure of different level of markets. He showed in the following figure, when all the
manufacturers of an industry of durable goods are covered gradually the serve market, then
qualified available market, and then currently available market 40% has been covered which is
subsequently turned into penetrated market. In this context, (100 40) = 60% potential market
did not buy in absence of their lower purchasing power, or interest and willingness. Sometimes,
manufacturers of durable goods are failed to reach this potential market because of technical or
commercial issues. Hence, without repeat purchase and converting competitors customers, sales
growth rate is zero. In this saturated market situation, manufacturers or the related distributors
and independent retailers can develop the secondhand marketplace to target the new segment of

secondhand market. In this context, assume that 20% firsthand durable goods holders of the 40%
penetrated market might sell their existent goods into the 20% secondhand market. As a result, in
the earlier penetrated market, it would be generated 20% vacuum market for new model or stylist
durable goods from the concern manufacturers. Manufacturers may re-fill up this gap by serving
new goods instead of older age goods. Thus an industry can maximize the total market and
ensure consuming ability of lower purchasing powered segment. The moderator said this new
thought can increase the social welfare and living standard of economically backward people. On
the other hand, the living standard of upper segment would be also increased because they will
get a chance to buy the new arrivals of the durable goods. The focus group realized the new
concept and all they agreed the modified model of deferent level of markets. At the eleventh
hour, all the participants of the focus group were very pleased by giving their opinion on the new
area of marketing. The author of this article closed the discussion by giving thanks with a big
hand. The findings of the focus group discussion explained in the following figure.
Figure no. 1

A Model of Serving Durable Goods at Different Level of Markets

Potential

100%

Market

10%

60%

Available Market

40%

Qualified Available
Market
Served Market
Penetrated Market

20%
10%
5%

Secondhand Market
Places

Industry of durable products

An Industry of Durable
Product

Second hand Market

Secondhand
Market Places

Recommendations
Based on the research findings, it is found that in a total potential market of an industry of durable goods,
secondhand market can be new segment that have lower purchasing powered people. Manufacturers of
this market have a scope to develop new model stylist durable goods ignoring second layer market.

Because in developing secondhand market second layer market will get the chance to buy their expected
product at a lower price which is affordable for them. In this connection, manufacturers are getting chance
to expand their total market and sales growth thereby. Here are some mutual benefits for both
manufacturers and consumers. In developing secondhand market to expand the total market of an industry
for durable goods raised some suggestions. They are given below:

1. Concerned manufacturers of durable goods have to set up specialized showroom with committed
warranty service at different marketplace of a country like Car Hat at Rajdhani High School,
Dhaka.

2. The market has to be trustworthy. Because the people do not have enough faith on
secondhand durable goods. Strong warranty service can be trust enough for the market.
3. The manufacturers of all durable goods should print the manufacturing and average
durability on the product as it not to be duplicated.
4. In the context of international business, manufacturers may allow franchised showroom
for buying and selling durable secondhand goods.
5. Independent retailers for secondhand durable goods may set up showroom at different
part of a country.
6. City Corporation Authority may establish some secondhand marketplaces in restricted
area at different geographical locations where independent retailers will hire the shop to
set-up showroom for buying and selling secondhand durable goods.
7. The retailers of secondhand goods should buy the old-age goods from different
residential areas by communicating over telephone, websites, and mobile calls. On the
other hand, any user of durable product may sell his or her older-age product in any
showroom of secondhand marketplace.
8. The rational price of secondhand durable product is equal to, The firsthand price (The
firsthand price Average durability and reparability) Number of using
days/months/years.
9. Every showroom holders should have their own websites for buying and selling the
secondhand durable goods through E-marketing or M-marketing.
10. Manufacturers should facilitate for setting service centre to ensure the warranty for the
secondhand market in expanding their total market and sales growth thereby.

Conclusion
This study has identified that secondhand market is currently available in the world. But till now
no academic text yet found in the marketing text books. A large number of articles have been
written in relation to secondhand market. The authors of this articles did not mentioned any
guideline how the manufacturers of durable goods can expand their total market in an industry.
This research has identifies that a few number of one-line based and hire-based marketplace are
existing in Bangladesh and country abroad. But they are not academically recognized and well
established. Based on focus group discussion it is found that there is a huge demand of
secondhand durable goods of the lower buying power people. But lack of enough and formal
showroom, a large number of buyers are not being able to buy their expected secondhand goods.
As a result, manufacturers are losing an attractive segment of secondhand market in expanding
their total market which has been shown in the given model in this article. According to the
following model, a large number of firsthand buyers of durable goods of the penetrated market
are selling their goods in the secondhand market segment for buying a new model or latest
version of the existing products. Therefore, total market is enlarging and people who have lower
buying power are being able to consume secondhand durable goods at a rational price. This
research also identified that well and planned establishment of secondhand marketplace can
contribute in the growth rate of an economy and increase the slandered of living as a whole.

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