It is no surprise that returns of consumer goods is a topic most companies wish to avoid. Returns are costly, difficult to manage logistically, and prone to process errors that can adversely affect the customer experience. Unfortunately, there is no nirvana when it comes to product returns. Returns will happen, and companies will continue to focus energies on return deflection, as they should. In the meantime, for those product returns that eventually do come back to distribution centers, it is not uncommon to hear such returns referred to as the ‘cost of doing business.’
Managing the reverse ecosystem is challenging enough, but too often, companies spend little effort on defining proper strategies to recover revenue, let alone maximize it, from returns. The solution, in many cases, is to outsource. In industries like consumer electronics such as smartphones, the paradigm of returns being a hassle has been the key enabler for a very intermediated supply chain consisting of brokers, selective buyers, and specialists to appear, all of whom have little to lose and much profit to gain. As a result, the secondary market for smartphones has exploded and will maintain high growth for many reasons including the rising cost of phones, customers keeping devices longer (~28.2 months), thus investing more in repair than replace, a heightened desire for original OEM spare parts, and the strength secondary market players have developed in their CRM structure.
The smartphone industry, over the last few years, experienced several major disruptions, all of which were catalysts for accelerating secondary market growth. Key disruptors included carriers abandoning price subsidy models in favor of financing, changing consumer behaviors evidenced by the correlation between longer time for consumers to upgrade their devices and the rapid growth of MSRP with new smartphone models. Lastly, it is consumers becoming very savvy with e-commerce tools for selling their devices at fair market value (vs. utilizing carriers’ trade-in programs which historically offer much lower value for used smartphones). The reality in the marketplace caused by these disruptors vastly differed from industry expectations. More specifically, smartphone OEM’s and wireless carriers arguably underestimated the impact the pricing model change would cause.
Over the past few years, sales of new model smartphones have slowed, as has the volume of returns of the older models when customers finally upgrade their devices.
Predictions that pent-up demand when launching new smartphone models would mimic that of earlier years simply did not meet expectations. Regarding returns, one might think that fewer returns are a good thing, and in absolute terms, that seems logical. However, from a sales lifecycle point of view, the reality is disappointing in several aspects.