Definition of Factory Refurbished

You're looking at an online catalog of computer parts or cameras, and suddenly you find a price and package too good to be true. You click on the description and the price is the same, in even bigger numbers. Then you notice the disclaimer stating the item is factory refurbished. The item may still be a good buy; much depends on what "refurbished" means.

Cell phones are frequently sold as factory refurbished items.

Refurbishment Defined

The concept of reselling a factory refurbished product cropped up sometime during the 1990s, when electronics and computers exploded beyond proprietary items and became commodities. With everyone wanting the product du jour, demand was high and output tried to match it. As a result, the number of electronic products with production or manufacturing issues grew. At some point companies realized it was a good idea to fix these items and resell them at marked down prices if they could guarantee that the item was as good as new. The product pitch of "factory refurbished" was then born.

Items Most Prone to Factory Refurbishment

Electronics involving miniature motherboards, chips and displays are the most common items, however factory refurbished status is now spreading to appliances and other electrical household items as well. Phones, personal digital assistants (PDAs), digital cameras, computers and digital equipment make up the bulk of factory refurbishing.

The process is straightforward. The manufacturer has all defective items shipped back to a central processing point. The defects are identified on a technical basis, sorted, determined if they can be saved, and repaired if so. New parts are added if needed to replace old ones. The item is cleaned, repackaged and shipped back to retailers with a "factory refurbished" label on it to distinguish it from a brand-new item. Retailers then discount the items and market them as cost-savers for consumers.

Getting Over the Stigma of Used

A factory refurbished product generally has already been bought by someone and found to be broken or not working right. So technically this makes the item used and not new. However, manufacturers make sure that the products that go to refurbishment are immediate returns and not some dusty bin collection that has been battered and used for a year before being worked on. Retailers provide much of the filtering to make sure what comes back to the manufacturers has a chance of resale.

Determining if the Price Difference is Enough

Many consumers will buy an almost new, used product if it is discounted enough. This tolerance point in price desire is a floating level, and it is the challenge that marketers have to figure out to price refurbished items correctly. If the price is too low, then the product plus the repair work sell at a loss. Price it too high and no one will want to buy the refurbished item when a new item is almost the same price.

The pricing also depends on demand. Some items that are driven by popular consumer demand, such as music players, can command higher prices, even when refurbished. Apple's iPods are one example, due to the inherent value placed on them by consumers.

Online Versus Brick and Mortar Store

Factory refurbished items tend to sell better online through Internet retailers. Store refurbished products are not marketed well and may leave the customer suspicious that the item was returned to the store and just stuffed back into a torn up box for resale. Consumers going to physical stores tend to move towards the new packaged items if given a choice between used and fixed versus untouched.

Protections and Warranties

Many factory refurbished products from reputable manufacturers come with limited warranties to entice buyers. These warranties may last from 90 days to one year or more, depending on what the manufacturer is willing to cover. In doing so, the retailer then has an additional marketing benefit beyond just lower price.