Reducing the Quantity and Cost of Product Returns in Consumer Electronics

Returns will cost consumer electronics companies an estimated $16.7 billion in 2011—and yet most do not fully account for or understand the impact of returns.

New research from Accenture quantifies the extent of this problem and suggests strategies to remediate the situation.

Accenture estimates that US consumer electronics manufacturers, communication carriers and retailers will spend $16.7 billion to receive, assess, repair, rebox, restock and resell returned goods in 2011. For manufacturers this represents 5-6 percent of revenues and 2-3 percent of sales for retailers.

This would be a gargantuan concern in any industry. But in a sector where margins are thin, competition is brutal and “customer experience” is a key differentiator, high return levels should be seen as a problem of unsustainable magnitude.

To help executives better understand the situation, Accenture recently set out to define the problem more fully and determine what actions could be taken in response.

• The most important finding may be that most consumer electronics companies do not fully account for the cost of returns—much less do anything to reduce them. Only warranty costs (approximately 30 percent of the total) are identified as a line item; typically the remaining 70 percent is categorized as part of sales, general and administrative or operational overhead.

• The return rate for consumer electronics devices is between 11 and 20 percent and rising.

• Of these returns, 68 percent are characterized as “no trouble found,” 27 percent are associated with buyer’s remorse and 5 percent are effective.

• The bottom line is that 95 percent of returns are ultimately unconnected to product defects.

Clearly, there are significant benefits associated with reducing the incidence and impact of “no trouble found” and buyer’s remorse returns (the “non-defective” 95 percent).

The first thing manufacturers and retailers can do is stop thinking of returns as a normal cost of doing business. They can then focus on addressing the twin challenges of reducing returns levels and improving their returns-processing operations.

Reducing customer returns. Consumers have come to expect high levels of service, especially in the consumer electronics sector—they are thus impatient with products they cannot figure out and support systems that are unhelpful. As a result, many will simply return the item. Companies need to improve the stages of the customer experience, from point of sale through point of first use to point of need. Retailers also need to train their staffs better and communicate realistic expectations to potential customers.

Optimizing the return/repair network. Most companies have a one-size-fits-all strategy when it comes to processing returns, lacking the ability to segregate the “non-defective” 95 percent from the truly defective early on. They are also frequently unable to differentiate between products tied to stable as opposed to spiky demand, which means they cannot make sensible decisions about where repairs should occur.

The following five steps can help to reduce returns:

• Measure the impact of returns.

• Develop product-education classes.

• Offer delivery and setup services to consumers for highly technical products.

• Invest in proactive customer service on high-cost/high-return products.

• Provide multiple service options.

Streamlining the return/repair process can drive out significant cost. Some specific strategies include:

• Work to understand the total landed cost of returns.
• Acknowledge that a one-size-fits-all approach rarely works.
• Decouple the return and repair processes.
• Implement strategies for quickly identifying no trouble found.
• Account for different levels of product demand.
• Explore creative solutions for B stock.

Accenture research reveals four leading practices followed by manufacturers and retailers who excel in this area:

• Measure the impact of returns to identify the optimal mix of investments in returns prevention versus processing.

• Create simpler product designs to improve the customer experience.

• Emphasize customer education to reduce returns.

• Aggressively encourage customer feedback to help determine the causes for returns.

David Douthit is an executive in Accenture Supply Chain Management consulting where he is the lead for Reverse Logistics and Repair. He has crossover experience in advising clients on customer support and service as it relates to supply chain issues. He has 20-plus years domestic and international experience in supply chain management, supply chain strategy, third-party logistics, sourcing and procurement, warehouse/repair operations, service parts logistics and electronics contract manufacturing. He has deep experience working with electronics and high tech, communications and product companies.

Michael Flach is a manager in Accenture Supply Chain Management consulting. He has an extensive background in supply chain transformation, sourcing and procurement, category review and international trade for a variety of industries.

Vivek Agarwal is a manager in Accenture Supply Chain Management consulting handling research and development activities for the global service strategy and operations service line. He has extensive experience in designing and implementing large-scale supply chain projects for a variety of companies in the electronics and high tech sector.