Business model for refurbished and second

hand mobile phones

Submitted in partial fulfillment of the requirements of the course

Business to Business Marketing

Instructor: Prof. Dheeraj Sharma

Academic associate: Mr. Gaurav Awasthi

Submitted by:
Hemanshu Das | Maithily Sarkar | Pushpanjali Singh |
Tushar Ovhal | Vineeth k. Kumar

18th October 2014

INDIAN INSTITUTE OF MANAGEMNET, AHMEDABAD

Acknowledgement
We would like to thank our institution, IIM- Ahmadabad, for giving us an opportunity to work
on a project through this course.
We express our sincere thanks and gratitude to Prof. Dheeraj Sharma for his guidance and
support at various stages of the project. We also thank all the people who took time out to clarify
our doubts and assist us in our methodology.
We are grateful to the all the interviewers for their time and effort in answering our questions..

Executive summary
To cater to a section of the society that want to purchase a second hand mobile phone or a refurbished
phone for either up gradation of model of their old phone or for style factor, a business model is
developed. This model is a combination of the e-bay model and the Amazon model and incorporates a
retail outlet that is a point of sale and point of collection of the refurbished phone. The model also
involves refurbishing the old phones using our own technicians but by procuring raw materials from the
companies. With appropriate calculations we can see that this business is profitable.

Contents
Acknowledgement ....................................................................................................................................... 2
Executive summary..................................................................................................................................... 3
Introduction ................................................................................................................................................. 5
Objective of study/project .......................................................................................................................... 5
Estimating the market potential ................................................................................................................ 5
Calculations Involved: ............................................................................................................................ 6
Estimating the value sales: ......................................................................................................................... 6
Calculations Involved: ............................................................................................................................ 7
Customer Insights ....................................................................................................................................... 7
U&A of Mobile phones ........................................................................................................................... 7
U&A of Second hand Mobile phones .................................................................................................... 7
Insights from retailers/ Exclusive Company owned stores, phone distributors, and multi-brand
outlets. .......................................................................................................................................................... 9
Possible business models - Evaluation..................................................................................................... 10
1. Ebay model ........................................................................................................................................ 10
2. Amazon model ................................................................................................................................... 10
3. Combination of brick & mortar and online platforms .................................................................. 10
Our Business Model .................................................................................................................................. 11
Geographical location:.......................................................................................................................... 11
Refurbishing: ......................................................................................................................................... 12
Sales: ...................................................................................................................................................... 12
After-sales service & Repair: ............................................................................................................... 12
Staffing:.................................................................................................................................................. 12
Financials ................................................................................................................................................... 13
Targeted Customers.................................................................................................................................. 14
Marketing & Promotional Plans ............................................................................................................. 15
Online Marketing Strategy: ................................................................................................................. 15
Offline Marketing Strategy: ................................................................................................................. 15
Marketing campaign: ........................................................................................................................... 16
Scaling Up .................................................................................................................................................. 16
Bibliography .............................................................................................................................................. 17

Introduction
In todays fast changing technology oriented world, a mobile phone is an integral part of the life. In fact,
more often than not, the phone is a symbol of status and almost everybody owns one. The market is so
dynamic that every six months there is a new model of the phones. Multiple brands compete in
Smartphone technology to gain maximum customers. Even the people who cannot afford spending a lot
of money make sure they are abreast with the changing technology or changing style. With this fact in
mind, there are millions of avenues to bring a business into place that caters to these people who cannot
afford a new phone every six months when one is introduced but would like an up gradation nonetheless.

Objective of study/project
The objective of this project is to develop a basic business model for second hand phones and
refurbishing of old phones. Through this project we aim to develop the model, find out if it is a feasible
plan in terms of operations, financials, and marketing. If so, how can this model be developed to scale it
up and make it a profitable business?

Estimating the market potential

According to the GSM Association, among the 896 million mobile phones sold worldwide in 2006, 50%
was replacement phones. Thus, there were approximately 448 million handsets for an estimated 489
million mobile phone customers. The resulting difference of 41 million customers would have relied on
used or refurbished mobile phones. This makes it approximately 4.5% of the total customers would rely
on the used mobile market (GSM Association, 2006). We would extend this assumption while calculating
the potential for India and Ahmedabad.
In addition to the above fact, it is estimated that in China 10-15% of all handsets sold were
used/refurbished mobile phones. This is drastically lower in the western developed nations. For instance,
in United States only 2% of all handsets sold were refurbished or used mobile phones. In addition to this
the unique subscriber base in Asia pacific is growing by 5.7% CAGR over the past 5 years, the highest
worldwide (GSM Association, 2014). The key contributors to this are India and China, though correct
estimates arent available.

Through our model, we would be focusing customers primarily by their economic classification, and thus
it would be best to consider the SEC Classification while estimating the market potential. Based on our
model, the primary targets would be A2, A3, B1, B2, C1, C2 (IMRB International). According to a report
by The Market Research Society of India, the distribution of this group in the urban population is as

12.60%

A1

A2

A3

B1

B2

D2

E1

E2

2.60%

13.20%
D1

4.70%

11.60%
C2

9.80%

12.90%

10.20%

8.60%

7.60%

C1

1.10%

5.10%

follows

E3

Thus, considering the population of 5.8million in Ahmedabad, we would be potentially targeting 56% of
the population. Considering that the mobile penetration of above 100%, we can safely assume that all the
3.28 million of Ahmedabads population could be considered. Going by worldwide and region estimates,
and a churn of mobile phones in approximately every 2 years, the estimated volume potentially annually
would be about 160,000 phones in a year in Ahmedabad itself.

Calculations Involved:
Population

5800000

Target Proportion

56.00%

Target Population

3248000

Average lifetime

2 years

Annual volumes

1624000

Proportion of used phones

10%

Annual used-phone volumes

162400

By 2020, by extrapolating the 5.7% CAGR of the mobile industry growth, the volume sales potential for
the used-phones market would be 226,480

Estimating the value sales:

Estimating the value sales is complicated because the ticket size of the different customer sub-segment is
not unknown and we do not have any credible secondary data to back our estimates. But by using
interpretations of our primary research and some calculated guesses, we estimate that by sales the market

could be as large as 35 crores. Considering a miniscule 10% margin, the profit from Ahmedabad alone
will 3.5 crores in the first year itself.

Calculations Involved:
Category

A2

A3

B1

B2

C1

C2

Proportion

5.10%

7.60%

8.60%

10.20%

12.90%

11.60%

Value

8000

6000

5000

4000

2500

1000

698,32,000

662,59,200

523,74,000

188,38,400

Total Value

662,59,200 740,54,400

Annual potential Sales

3476,17,200

Customer Insights
Based on interviews conducted on various customers and retailers/dealers some insights were gained.
These insights were used to conceptualize the idea of the model.

U&A of Mobile phones

1. People today are tech savvy and need the latest technology.
2. There is a general trend observed that the people have high involvement with the phone
during the initial phases but have a declining trend of interest in the later days.
3. The socio-economic factors such as age, gender, income, education and profession play
an important role towards defining the attitude and usage of the mobile.
4. Youth segment is the high involvement segment for usage of mobiles.
5. The urban and suburban usage of mobile is much higher than the usage in rural areas.

U&A of Second hand Mobile phones

1. Refurbished phones are less expensive than new mobile phones so many people buy it.
2. It breeds new appeal to lovers all things vintage.
3. Cost saving is the prime factor appealing to the customer to buy refurbished phone.

4. Some customers see buying of second hand phone as an eco-friendly move having an
impact on the larger planet at large. Thereby keeping the cell phones out of land fill.
5. Some customers want the same phone again just because they know their phone, feel
bonded to it and dont want to sever the relationship.
6. Some elderly customers feel reluctant to change with technology and prefer using the old
phone.
7. For the customers who feel that new features are their best friend and would like to
replace his/her cell phone every year, buying a refurbished phone is not considered a
good option.
8. Even though the customers pay less for a refurbished phone, they are apprehensive about
quality and sometimes dont like taking risk with the quality.
9. When buying a refurbished phone customers look for reputation/brand of the company
who refurbished the phone. They also look for sound track record and good feedback
from previous customers.
10. Customers feel convinced and buy the vendors who are able to convince them on why the
price cut you are receiving from used cell phone still comes with old quality that will last
you in future.
11. Customers are concerned about warranty. They want to be covered for a considerable
period of time.
12. Customers check for the features of the phone, its functions and other quality parameters
before buying a refurbished phone.
13. Second hand phones are used by customers who like to upgrade to new technology and at
lower costs.
14. Customers may want to research the model they are considering before buying it to see if
there are any common complaints.
Warranty is the most important factor for the customer, otherwise its not worth the price.

Insights from retailers/ Exclusive Company owned stores, phone

distributors, and multi-brand outlets.
1. Buying a phone directly from service provider helps guarantee that it will work with the
customers account and phone network.
2. There has been a trend seen that majority of people come to return the phone which is not
in a bad situation. The customers are more prone to changing phones now a days.
3. The retailers do not take the phone which are in very bad condition and are careful while
taking the used phones from the customers.
4. Exclusive company owned stores like Samsung and Nokia store always ask for bill of the
mobile phone when taken for refurbishment.
5. The retailers have certain patent customers with whom he maintains good relationship.
6. Majority retailers make sure that they give warranty to the customers of refurbished
phones. At times when the customer is not willing to pay extra for warranty, then the
phone is given without warranty.
7. It is important that the retailers have ample number of phones for exchange. This is not
much of a problem in multibrand and exclusive company owned outlets but in local
unauthorised physical distributors.
8. Majority customers would enquire into the past record of the mobile phone, so it is
important that the vendor convinces the customer giving him the right information.
9. Different types of stores have different promotional schemes to attract the customers such
as: Croma has buyback scheme on particular model of cell phone.

Possible business models - Evaluation

We have identified 3 potential models:
1. Market place model (popularly called Ebay model)
2. Flipkart/ Amazon model
3. Combination of brick & mortar and online platforms

1. Ebay model
In this model, we would just provide an online platform to connect potential buyers and sellers of used
mobile phones. We are not choosing this model on account of the following reasons:
a. Profit margins are very low
b. Low control over the quality of the used handset that is being sold which could affect our
credibility
c. Customers would not be able to physically see and verify the handset before purchase
d. Refurbishment if needed cannot be provided by us since our role is limited to providing a
platform for exchange

2. Amazon model
Here, we would procure used handsets from customers from their homes or at a single collection point;
maintain a website where customers can place orders; and the product would be delivered to their homes.
Payment would be through online payment gateways. We are not choosing this model on account of the
following reasons:
a. Customers would not be able to physically see and verify the handset before purchase
b. Huge transportation costs for delivering to homes which would affect the margins
c. We would not be able to reach out to customers who are not e-literate who actually form a
significant percentage of the second hand mobile market

3. Combination of brick & mortar and online platforms

Hence we propose a business model that leverages the advantages of brick and mortar store as well as the
online platform.

Our Business Model

We will maintain a website to showcase the product portfolio that we are having. The main purpose of the
website would be information dissemination about our products to the customers information regarding
product portfolio, availability of a particular handset model in our retail shop, product warranty and other
terms and conditions. All business activities collecting, refurbishing and selling phones and payment will happen in the retail store. The website provides convenience to the consumer in not having to come
to the store to enquire about products and their availability. The website would also help us to collect
feedback from customers who have used our products. Good testimonials on the website will attract new
customers to our shop.
The retail shop would serve 4 purposes - collecting used mobile phones from potential sellers,
refurbishing them (if required), delivering the second hand phone to potential buyers and mobile repair
services.
This business model is superior on account of the following reasons:
a. Higher profit margins
b. Customers can physically see and verify the handset before purchase
c. Possible to provide refurbishing and repair facility
d. We can reach out to e-literate as well as non e-literate customers
e. No logistics costs involved

Geographical location:
We have chosen Ahmedabad second hand mobile market to launch our business. Gradually, we plan to
replicate the model in other cities. Within Ahmedabad city, we plan to open one retail store first and
subsequently, multiple stores.
Collection of Used Mobile phones
Potential sellers can sell to us their used mobile phone at our shop. The price to be paid would be decided
based on:
a. Demand in second hand market for this handset model
b. Condition of the phone (hardware and software)
c. Whether warranty period is over or not
d. Bargaining power of the seller
There 2 types of sources from where we can collect used mobile phones:

1. C2B business:
These are the Customers who would directly hand over their used phones to us.
2. B2B business:
Mobile retail showrooms who provide exchange offer to customers on purchase of new handsets.
The used handset given by the customer would be sold to us by these showrooms.
The bargaining power of the second group would be more because they would provide us used phones in
bulk. Hence we would need to offer higher prices to them.

Refurbishing:
We plan to employ 2 technicians for this purpose. Used phones would commonly need refurbishment
with regards to mobile case, switches, etc. Sometimes the operating system would need re-installment. All
raw materials required for hardware refurbishment would be procured in bulk from external vendors at
competitive prices. This sourcing would be a B2B business.

Sales:
Customers could either exchange their existing handset (E.g iPhone 4S) for a better second hand model
(E.g. iPhone 5S) or buy a handset without exchanging anything. There would be a discount on customers
purchasing from us via exchange in order to encourage them to sell to us their existing mobile phone.

After-sales service & Repair:

Apart from refurbishing, we plan to provide post-sales customer support. That is, we would have
repairing facility too in our shop. This will help us in giving the assurance to the customer that they can
approach us for any after sales repair service. Repair facility can be availed by any third party customer
too which would give us an additional revenue stream. But customers who have purchased second hand
mobiles from us would be eligible for a discount on repair services.

Staffing:
Designation

Number

Responsibilities

Monthly salary

Store manager

Supervision of staff; Liaising with refurbishing raw 10000

material suppliers; ensuring good customer service at
store

Sales person

Interacting with customers during collecting and 7500

selling phones

Technician

Refurbishing used handsets; repairing handsets

7500

in 1

Website

Maintaining online consumer interface

10000

charge

Financials
Based on the above model devised a rough financials was drawn as shown below. This shows us that the
model is viable. Both monthly and yearly calculations are shown and a profit of about Rs 717500
annually is expected at the starting phase which can be increased exponentially when the business is
scaled up.
Monthly Yearly
Revenue
From sale of second hand mobiles

17500000

From repair services

COGS
Cost at which mobile is procured from seller

12250000

(@70% of reselling cost)

Cost of refurbishment (material cost) (@10%

1750000

of reselling cost)
3500000

Gross
profit
Salary
Costs
Store manager (1)

10000

120000

Sales person (1)

7500

90000

Technician (2)

15000

180000

Website in charge (1)

10000

120000

Average Rental rate in Ahmedabad (per sq ft)

50

Rental space (in sq ft)

250

Monthly rent

12500

Store rent

Website domain rental cost

150000
5000

Miscellaneous costs (power, water, etc)

5000

60000

Advertisement cost (@10% of sales revenue)

1750000

Profit before tax

1025000

Tax@30%

307500

Net profit

717500

Targeted Customers
The business is targeted at consumers who are in middle class, lower economical class and upper middle
class i.e. Sec B, C and D class. The primary reason for targeting them is because they are likely to
purchase a second hand phone for up-gradation in the model, or change or style factor.

Marketing & Promotional Plans

Our model is two pronged which seeks to capture both an online space as well as the brick-and-mortar
store. This requires the marketing strategy as well to be directed to both these avenues. Since they serve
different functions, they cannot be substituted or promoted through the same sort of promotion. But both
the mediums complement each other and the marketing strategy needs to be leveraged for this.

Online Marketing Strategy:

The online marketing strategy would involve two components:
i)

Native Advertising

ii)

Online Search Ads

Native advertising would involve sponsored articles written not specific to our shop, but rather to the idea
of buying a used mobile phones. The primary objective of this would be to increase the category size by
improving the propensity of purchase. Since, they do not promote any brand in particular, the article
would be considered impartial and would provide both the pros and cons view. This would also help build
credibility of the brand.
The online search ads would be strategically posted by buying a pay-per clicks and pay-per-impressions
on Google. Initially these ads can be targeted to searches conducted only in Ahmedabad. This would help
redirect traffic to the website. The website content would have to be worked upon to ensure retention, and
its discussion is beyond the scope of the project currently. The website will additionally serve another
important purpose, which would be to direct customers to the retail store. This would help in promotion
of the store and the service.
Along with these, we would need to buy ad space on prominent yellow page websites such as Justdial so
that our shop features on top while customers search for exchange stores.
The campaign should be transparent, and if true information regarding costs are provided, customer
retention would be assured.

Offline Marketing Strategy:

Being an Ahmedabad-focused enterprise in the beginning, the offline advertisements can be limited to
regional TV networks. Also, this can be supplemented with banner ads across the city. Both these would
enable promoting the presence of the store in city, and help create a mental presence in the minds of the
people. This process can be aided through promoting the idea through kiosks and information centers.
The primary aim would be to provide pricing and operational information, and clarify various concerns

people might have. This in turn, along with a good service will impact and increase the word-of-mouth
reach.

Marketing campaign:
In marketing campaign the retail outlet and the business will be positioned as a place where you can get
your style upgraded and the focus in the campaigns will be on the keyword change based on insights
gathered. This can be used as a purpose statement for the business.

Scaling Up
In scaling up the following model can be started in other cities in India. Each city will have one or two
such retail second hand stores. Initially the demand of each city will be catered by the supply from the
same city. But with expansion of business, it is better to integrate a few regions and cities due to the
following reasons:

The imbalance in supply and demand can be balanced out with larger number of cities. The
phones unavailable in one city can be brought from another city where that particular model is in
excess.

Economies of scale can be leveraged on since one central warehouse would be required for
refurbishing in integrated regions. This would mean lesser staff, lesser storage areas and sharing
of resources thereby reducing duplication of work.

Bibliography
GSM

Association.

(2006).

Mobile

Phone

Lifecycles.

Retrieved

from

GSMA:

http://www.gsma.com/publicpolicy/wp-content/uploads/2012/03/environmobilelifecycles.pdf
GSM

Association.

(2014).

The

Mobile

Economy.

Retrieved

from

GSMA:

http://asiapacific.gsmamobileeconomy.com/GSMA_ME_APAC_2014.pdf
IMRB

International.

(n.d.).

The

New

SEC

System.

Retrieved

http://imrbint.com/research/The-New-SEC-system-3rdMay2011.pdf

from

IMRB: