Protecting Your Brand in the Secondary Channel

A True Case Study

This week’s blog is a guest post by Fizah Jadhavji, CEO of Vivitech Solutions, Inc. — a major player in Reverse Logistics, closeout, excess and obsolete products marketplace.

Every major OEM brand selling to big box retailers such as Walmart, Target and Costco must accept customer returns- this is a challenge that all companies in today’s marketplace face. Poor return management practices can easily eat up your bottom line as well as damage a brand’s reputation. Many OEM’s are apprehensive about liquidating returned products due to fear of channel conflict, interference with sales of new products and dilution to the brand’s reputation.  In fact, top-tier branded products that are sold within online channels deeply discounted as “new open-box” often are the result of ineffective return procedures.

When these “at-risk” and returned inventory stocks that are liquidated for 10 cents on a dollar show up on Amazon and eBay, it opens the door for the end-user to claim warranty for a product that you already liquidated! Consequently, many OEMs are left in a position where they may issue return credit on the same item twice!

How do you efficiently manage the product return cycle if you are a major brand selling thousands of products and multiple categories across the USA? How can you best handle returns without having to spend more capital just trying to control your exposure in the market?

THE MILLION DOLLAR PROBLEM
This was the million-dollar question an OEM client of Vivitech Solutions was facing in managing their returns. At issue, the OEM was offering advance return allowance to retailers, which in-turn allows the retailer to charge back a certain percentage to the OEM on every invoice to cover returns. This initially seemed like an economically feasible solution because the OEM was able to cut costs. Retailers constantly need space and by receiving advance return allowance, they have the right to dispose of unwanted returns anywhere they choose. However, the OEM soon realized their product kept popping up everywhere at extremely low prices. They were constantly competing against themselves, and they were being double-dipped on the warranty side as well.

The OEM also noticed that some products being returned that had already come through their return center once, meaning that the OEM issued a refund or exchange twice for the same unit. Their legal team did some research and found that returned products were starting to show up online as “new open box” products with prices below market value. Thus, the OEM’s warranty center started receiving phone calls from customers who were misled into buying a used product as new. The OEM’s’s first reaction was to immediately stop the bleeding – so they stop offering advance allowance and asked all their customers to start shipping the product back to the OEM’s distribution center. The OEM would audit the RMA’s to ensure accuracy, and then destroy the units – allocating additional time, labor and financial resources to ensure that returned products were being properly reported and disposed of.  The OEM quickly realized that this process was not financially feasible, and was directly cutting into their profit margin. As pressure started building for our OEM client, top management realized they needed to find a creative solution.

THE MILLION DOLLAR SOLUTION
Vivitech Solutions solved the OEM’s problem by creating an end to end solution for managing returns. Vivitech was appointed the exclusive National Return Center and authorized repair center for the OEM.  All shipments from the retailers where sent directly to this location where they were audited.   In addition, Vivitech provided  a data-driven approach which allowed for  a triage analysis of the product, costs, and market prices to achieve the highest return by refurbishment and servicing. Vivitech also remarketed  these refurbished goods in secondary channels and smaller retailers. This helped to prevent channel conflict and protected the OEM’s primary product line.

THE MULTI-MILLION DOLLAR RESULT
This solution has been in place for  three years and the OEM is very pleased with the program’s performance. The OEM was once spending six figures annually just to handle the logistics of the return process, only to end up destroying these products in landfills afterwards. They have now off-loaded the headaches of handling returns themselves and  significantly reduced overhead costs in exchange for benefiting annually from a seven-figure secondary source of revenue.

Basically, Vivitech created a secondary market and constant revenue stream for their OEM partner. In fact, the OEM’s sales team & outside reps now offer and sell Vivitechs’ “factory-serviced” products to customers as second-chance discounted products.  This case study shows how by outsourcing the reverse logistic function, a process that was once depleting profit margins,can result in a higher profit margin, recurring  revenue, and higher ROI.  Truly a win-win for all parties involved.

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