Are you keeping tabs on what happens to your products in the secondary markets? Soon after starting her new role, Kathy Murphy observed a very active secondary market full of her product lines. Dollar stores, value retailers, auctions and websites with open box, almost new Jarden products for sale at discounted prices. Jarden often has Return Allowance programs with retailers to avoid the costs of Reverse Logistics processing. As a result, the retailers keep the returned products and typically destroy or sell off the goods, usually in bulk quantities, to secondary market resellers or retailers to recapture some value. Was this active secondary market a problem or an opportunity? Were these secondary sellers presenting and supporting Jarden quality and brand standards? Murphy decided it was time to understand the secondary market better with a pilot program to take back and remanufacture the retail returns. “If we do NOT do it, someone else will or already is!” says Murphy, “we wanted secondary market products we can be proud of.”
Kathy Murphy is the Senior Sales Operations Manager at Jarden Consumer Solutions (JCS). Its parent company, Jarden is a Fortune 500 company with a portfolio of over 100 consumer brands. Major JCS brands, include Oster, Sunbeam, Health o Meter, FoodSaver, and Mr. Coffee and K2. Murphy is responsible for collaborating with the supply chain, marketing, and finance teams to identify and liquidate excess and obsolete inventory for all JCS products. Over the last 20 months JCS has been implementing a remanufacturing program with some of their small kitchen appliance products with the help of a 3rd party reverse logistics and remanufacturing services partner. This new strategy has been implemented to investigate the benefits versus their existing Return Allowance program.
Kathy kindly shared her experiences with the Reverse Logistics Association members and guests in an open webinar hosted by the RLA Consumer Electronics Committee.
Concerns with Retail Returns Allowance Programs
A Returns Allowance program was initially established with major retailers to avoid the need to handle product returns and incur transportation and additional handling or processing costs related to the returns and reverse logistics. However, Kathy Murphy observed that within this blanket program, there may be some opportunities worth investigating. She observed:
- Brand Disruption With the Return Allowance program, the Retailers owned the returned products. In order for them to recapture some value from the returned products, some JCS returns were being sold into the secondary market. In some cases there were concerns that these secondary market products may impact the JCS brand image and that the high visibility via the Internet may be disrupting both U.S and Latin American markets.
- Brand Protection Brand protection was a concern, because others were selling JCS product as refurbished with huge variations in quality and pricing. The secondary products had no standards for packaging (some in brown boxes, some in damaged color boxes) and no standards for the sanitation of returned units that may have been exposed to food or that may be used for food in the future (such as a Crock Pot slow cooker).
- Double Warranty Costs some secondary market products were getting returned to JCS with warranty issues, but in reality JCS already paid warranty on these units in their Return Allowance program with the Retailer. As a result, JCS is covering the warranty on products in the secondary marketplace and in reality is paying a duplicate warranty claim on the same item.
- Profit Opportunity since there seemed to be good demand in the secondary market for product, why not capture that profit opportunity for JCS.
Benefits of Remanufacturing
As a result of the remanufacturing program, Murphy outlined a list of some of the benefits she has identified so far:
- Gained better control of brand image and unauthorized pricing
- Increase in revenue and margin via sales of remanufactured units and recycling
- Return Allowance Program can result in product entering the secondary market with no control
- Utilize remanufactured product for warranty replacements
- Data collection is yielding better information for warranty and engineering analysis
- JCS quality/engineering teams have utilized the data collection to implement improvements to product.
- Improvements were implemented to packaging (both 1st quality and remanufactured)
- Increase opportunities to reduce duplicate warranty claims
- Opportunity to harvest components for alternative uses (blender jars, switches, decanters)
- Influence final destination of our product ( i.e. landfills, International, assist internet sales)
- Enhance sustainability opportunities within the organization to help reduce our carbon footprint
As a result of the successes of the current program Kathy Murphy has grown the program to over 55 items and with full support and encouragement from senior management. She will now be expanding the program to other retailers, other product lines and exploring other product categories. While remanufacturing is not suitable for all products, there is certainly a profit and brand protection opportunity at a lower price point than we expected, with the inclusion of some small kitchen appliances with a retail price point of 19.99.
Maybe it is time to review your Return Allowances and Reverse Logistics programs. There may be significant profit and brand protection opportunities available for your organization as well!
Paul Rupnow - Director, Reverse Logistics Systems, Andlor Logistics Systems Inc.
Editor - Reverse Logistics Professional Report
Business Insights and Strategies for Managing Product Returns