As the volume of returned products continues to grow, the question and issues related how to provide those products another life continue to be asked and re-considered. For many organizations – both OEM’s and retailers – there is a tension between their existing sale of new products and the potential sale of recovered products (recovered products being a refurbished or remanufactured product). Frequently this tension can be a key inhibitor to organizations being willing to explore the opportunity these recovered products represent.
The Ellen MacArthur Foundation recently published a White Paper that CoreCentric Solutions completed. This White Paper explores the experience and lessons learned by 8 different OEM’s in their journey to selling recovered products. The White Paper focused on answering the question, “Does selling recovered product negatively impact the sale of new products?” but given that “No” makes for a very short White Paper, the Paper explores a variety of other issues and benefits these OEM’s experienced.
In every instance, all 8 of the OEM’s were very clear that selling recovered product did not negatively impact new product sales. In fact, it did the opposite – it grew their business. In the interviews each of the manufacturers made it clear that selling recovered products allowed them to reach new markets and sell to consumer – both individual and institutional – that they were not reaching before.
These consumers – whether they were budget-restricted or bargain-hunter – wanted the brands in question but were not willing or able to pay full-price for the products. By offering a recovered product with a price reduction of somewhere between 15 – 30%, these OEM’s were able to sell to consumers that wanted their products but had previously not purchased their product.
One OEM noted that by selling recovered products it opened markets for government contracts. These government contracts include requirements for recycled-content that the OEM was not able to meet with new product, but the recovered product met the recycled-content requirements the OEM was able to expand its business to public-sector clients.
Additionally, and this focuses more on institutional purchasers, OEM’s noted that by selling recovered products some of their institutional clients were able to buy more product than if they only purchased new.
The sale of recovered product also was an opportunity to sell companion service support for that product. In addition to another revenue stream, this service support creates a long-term relationship with the customer.
In the end, all eight OEM’s reported the same outcome: selling recovered products expands sales without having a negative impact on new product sales.
But the benefits of selling recovered products went beyond expanded markets and sales. These include:
• Avoiding failure. By recovering returned/failed/lease-return products, the OEM’s were better able to understand why the products were failing and make the appropriate changes to the product design to mitigate those failure modes.
• Product design. Because these products were now being designed to be recovered, new design features were considered and built-in, including: re-designing the product to maximize the recovery of parts and minimize time needed to recover those parts; building in modularity to make it easy to remanufacture the product in It’s next life; and, critically, focusing on quality so that the product was able to have multiple – rather than one – life.
• Business optimization. The business of capturing old products, doing the necessary inspections and value-added work to the product was not a regular business process for many of these OEM’s. In building out these new business units, they were able to re-think their existing supply chains; develop new business capabilities; and even re-think their sales compensation. While different OEM’s reported different benefits, all of them indicated that the process of developing the new capacity helped improve their overall business operations.
In the end, there were six key lessons that the White Paper identifies for being successful in selling recovered product. These are:
• Brand is King. The recovered product must be affiliated to the OEM’s brand as the consumers were frequently shopping for the brand and brand experience.
• Own the recovered product aspect. Consumers are open to buying recovered product, but they must know it is recovered. Some OEM’s also go so far as to telling the consumer all the quality checks and inspections the product received – not only owning the recovered aspect but being transparent about it.
• Quality is required. The recovered product must perform like new. As one OEM said, “These consumers are looking for value, and that includes performance. If it doesn’t perform, it won’t sell.”
• Price for value. The discount for the recovered product compared to new ranged from 15 – 40%; while there was no agreement on how much the product should be discounted, all OEM’s agreed it must be discounted.
• Guarantees add credibility. The product must have a warranty. It doesn’t have to be the same as a new product, but a warranty offers consumers peace-of-mind and tells the consumer that this is a quality product.
• Consider separate channels. While there was not unanimity on this issue, most of the OEM’s interviewed had created separate channels to market and sell their recovered products.
In a recent RLA magazine article, Varun Thakar from Amazon wrote that, “…the increased awareness of consumer is making them open to purchasing refurbished, cameras, audio devices, home and kitchen appliances, office products, pre-owned watches and even open-box products. Customers are willing to purchase brands they would like to own at prices they can afford.”1 The White Paper not only supports this conclusion, it finds that this conclusion creates new opportunities for businesses willing to sell to these consumers.
1 Varun R Thakar, “The Rise of Refurbished Electronics”, Reverse Logistics Magazine Edition 93
The White Paper includes contributions from the following OEMs: Bridgestone, Dell, ecobee, GE Medical, HP, Lexmark, Philips Medical and Renault. To get A full copy of the White Paper, entitled, “ Remanufactured and Refurbished Products and Parts: Busting myths surrounding their impact on new product sales” go to the Ellen MacArthur Foundation web site or contact Chris Cloutier at CCloutier@corecentricusa.com.
Chris Cloutier has worked at the intersection of economic growth and environmental improvement for the past 20 years. His work has helped Best Buy, Sears, Whirlpool, WW Grainger, CoreCentric Solutions and others turn environmental challenges into economic opportunity. With a deep background in waste and recycling, energy and energy efficiency, product and technology development and sustainability. Chris was most recently the Director of Business Develoment and Sustainabilty for CoreCentric Solutions.