A FreeFlow Dissertation by Worldwide Who’s Who Member Paul Coughlan
Increased Recovery: What’s at Stake?
As a consumer electronics manufacturer you know firsthand the impact of returns on your company’s financials. The Consumer Electronics Association predicts a total of $182 billion in U.S. shipments in 2011. The dark side: CEA reports an astonishing 18% of consumer electronics (CE) products sold will be returned. In revenue terms, that’s over $32 billion in the U.S. alone.
Value recovery is the phrase coined by the reverse logistics industry to describe efforts to recoup the billions of revenue dollars lost to product returns. Before e-commerce opened the global online secondary market, CE manufacturers recovered only cents on the dollar by selling direct to a handful of local brokers using a manual, informal and noncompetitive process. However, in recent years business-to-consumer (B2C) online selling has given rise to a thriving secondary market of buying, repairing, repackaging and reselling of returns inventory. According to IBISWorld, in 2010 revenue for the computer repair industry, resell revenues included, reached $20.3 billion. With an estimated 50% to 70% of consumer electronics returns being no fault found (NFF) — product deemed to be defective or used because the seal was broken, but there is nothing actually wrong with the product — there is aggressive trading on top brands.
In this article, I offer the key guidelines to tapping this market, from definitions to sales strategy to tips for tactical implementation.
Do Auctions Work for Returns Inventory?
Bulk liquidation — retail salvage — should be your disposition method of choice only when warehouse space is at a premium. Returns are sold off to a single bulk liquidator who makes frequent pickups and pays a pre-negotiated flat fee across all products. The manufacturer benefits by reduced material handling and storage but sacrifices the control of the sale, the transparency of market valuation, and the financial recovery that will instead go to the liquidator.
Auctions are ideally suited for consumer returns in wireless and consumer electronics categories. U.K.-based WDS conducted a study showing a 63% no-fault-found (NFF) rate on handsets translates to a gamble most secondary market resellers are willing to take, and CE products often share the same NFF profile. Thus, with minimal overhead secondary market resellers can bring in product, test, repackage and resell at good margin. This spells opportunity for original equipment manufacturers (OEMs), where competitive bidding on top brands drives top recovery ranging from 50% to 80% or more of standard cost. In value recovery terms, auctions win hands down over bulk liquidation. So we’ll focus next on developing your go-to-market strategy for auctions.
Importantly, when brand control is at issue — and for CE manufacturers this concern is at the top — seek a service provider who can host your auctions on an online private marketplace to give you the power of competitive bidding among buyers you control.
Developing a Winning Go-to-Market Strategy
Just like your primary channels, success in the secondary market is driven by how you present product to your buyers, keeping an eye to helping them make money while maximizing your own margin. The secondary market is no different: be clear on what you’re selling and back it up with consistent operational performance — you’ll grow a loyal following of competitive bidders.
We’ll stratify our discussion into stock rotation or channel returns versus consumer returns. Product coming back from the channel under explicit stock rotation terms (unopened cartons with no added labeling) should be resold as new. Ensure that your returns operation can quickly transfer that inventory back into outbound distribution after visual inspection. Everything else you’re going to sell. How? Single stock-keeping unit (SKU) or bundles? In what quantities?
Alternative channels provider FreeFlow is careful to help you consider all aspects before defining the appropriate go-to-market strategy — how you store your returns, for example product mix per pallet, the number of global inventory locations, your corporate inventory policies, etc.
Brand Protection and Channel Control
Manufacturers of top brand consumer electronics (CE) will forsake value recovery if it comes at the expense of brand protection and channel control. While there is near universal acceptance of single-unit consumer-to-consumer (C2C) or small business-to-consumer (B2C) sales on eBay, Amazon and other consumer sites, OEM’s do not want to relinquish bulk sales of branded product to an uncontrolled channel.
A Quick Checklist of the Capabilities You Need in Order to Maintain Control of Your Secondary Channel:
- Do not sell to bulk liquidators. Tempting, with their offer of cash up front and ability to quickly clear your warehouse floor, but you lose control over downstream sales. If brand control is of concern to you, resist the temptation to use bulk liquidators or third party reverse logistics service providers who will be remarketing your product as they handle disposition.
- Require your buyers to agree to your Terms and Conditions (T’s & C’s). This should be part of the registration process on your auction site.
- Your T’s & C’s should stipulate geographies, named accounts, or other conditions, either permitted or not permitted. If you wish to exclude current channel partners and bulk liquidators they should be listed on a Denied Parties list, which can be screened during the registration process.
While we’re on the topic of T’s & C’s, consider questions like the following, all of which have trade-offs to balance:
- Have you thought about warranty?
- What about credit terms? Shipment terms?
- Do you have serial number tracking to prevent returns?
Demand Generation: Building a Global Buyer Base
Competition at auction is key to driving top recovery on consumer returns. It follows, then, that establishing and continuously growing a vibrant community of buyers is key. If you (or your service provider) simply post items on an auction website and expect buyers to come, think again. Knowing how to recruit, retain, and grow your buying community is more science than art; more discipline than hope. Whether you’re running your own auctions or utilize the services of a third party, the formula for success includes both online and offline outreach to prospective buyers.
But first, what about your legacy buyers — those people with whom you’ve been dealing for years? This buying community should be at the core of your new buying community, before any recruitment of new buyers. Why? Because these buyers know your inventory and depend on your inventory as a supply source. Engage them in competitive bidding and, perhaps for the first time, they’ll be forced to pay you fair market value.
You Can’t Sell What You Can’t Describe
Did we mention that secondary market buyers are risk averse? Put yourself in their shoes: you’re paying cash up front, including shipping, for consumer returns. You’re buying online, so your purchase is sight unseen. Safe to say you’d want as much information on the auction listing as possible, and on any lots where quality and content was unclear, what would you do? You’d lowball your bid, if you bid at all. As a seller, whether you are going to market with single-SKU listings or mixed lots here’s the descriptive information you’ll need to provide.
Pricing and Performance Metrics Go Hand-in-Hand
When auctioning consumer returns, whether by lot or by line-item, you’ll need to set a reserve price. But what is it and at what price point should it be set? A few tips:
What is it? Reserve price is the lowest dollar amount at which you’re willing to release (ship) your product when your auction closes and the reserve price is met.
How much? Too low and you may be cheating yourself out of value recovery (seldom the case, however, with competitive bidding for top CE brands). Too high and you may discourage participants. Finding the sweet spot requires market insight — knowing how buyers determine their resale price and how they calculate their margin. If you don’t have staff with market research time and expertise you may wish to partner with a service provider that includes pricing advisory as part of their services.
Don’t expect your best results on your first auction. It takes time to build buyer confidence, which includes completing several rounds of trouble-free product receipt, i.e. where delivered lots accurately match the quantity, condition, and packaging as advertised.
Resources You Will Need
As we’ve discussed, achieving top recovery on consumer returns requires capability and bandwidth to:
- Understand market pricing and how to position your products for best recovery.
- Engage, retain, and grow your buying community, and manage hundreds of commercial relationships.
- Merchandise your product for the online global secondary market.
- Retain brand control.
- Build and use metrics to drive continuous improvement.
By now you likely recognize that achieving top recovery on the secondary market — whether on returns, refurbished goods, end of life (EOL), obsolete or excess active inventory — is in many respects identical to managing primary sales channels. Does your organization have this expertise? Capacity? Priority?
Your resource picture can be brighter with the help of the right alternative channels partner. Offloading the strategic, operational, and commercial aspects of your asset recovery program while leaving you in control of key decisions — channel control and pricing — is an approach you may wish to investigate.
Ready to Learn More?
To find out more about FreeFlow, please visit the FreeFlow website.
About Worldwide Who’s Who Member Paul Coughlan
Worldwide Who’s Who member Paul Coughlan, vice president of business development at FreeFlow, has proven expertise in sales and communications. Ireland-based company FreeFlow, the company for which he works, has a global presence after being in business for more than 11 years. The organization is best known for its ability to provide new life to slow moving, obsolete finished goods inventory in the consumer electronics and telecommunications industry. This has enabled them to emerge as a high-profile, end-to-end automated asset recovery provider.
After achieving a high level of reliability, they have gained a stable of high-profile clients, including Microsoft, Apple, Sandisk, Logitech, Brightstar, RIM and Radioshack. As VP of business development, Mr. Coughlan cultivates strong business relationships with his clients in the consumer electronics and telecommunications industries. In total he has gained 25 years of experience working in the retail, manufacturing, production, logistics and sales arenas of the FMCG, (Fast, Moving, Consumer, Goods) and IT industries.
Through his personable demeanor, Mr. Coughlin is able to achieve a greater understanding of clients’ requirements. He continually strives to drive higher sales for FreeFlow, and deepen relations between agent and personnel. Mr. Coughlan is a focused individual who has, over the years, become exceptional at cultivating longstanding and dynamic relationships, and effectively engaging people he has never met. As he puts his best foot forward, he forges new relationships into lifelong connections.
Mr. Coughlan attributes his success to his deep understanding of the supply chain process from end-to-end. In 2004, he received an MBA from The Open University, Milton Keynes. He is a member of Open University Alumni and uses his MBA experience to grow his business.
If you feel that you have the sales potential to connect and forge relations with personnel who are in the consumer electronics and telecommunications industry, please visit Freeflow to learn more about our sales agent model.