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Reverse Logistics Magazine - Edition 94
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Reverse Logistics Magazine - Edition 93
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Online Marketplaces Provide Fast Liquidation with a High Return

by Jim Magnanini, VP of Sales — Manufacturing Business Unit, ChannelAdvisor

Reverse Logistics Magazine, Winter/Spring 2006

In years past, as reverse logistics was relegated to the shadows of "more important" corporate processes, asset recovery was paid little attention. Returns were treated as a necessary evil, and "out of sight – out of mind" was the mantra. Liquidation for convenience was the order of the day, and clearing warehouses and getting returns off the books was considered more important than maximizing recovery. One or two phone calls to the same old jobbers took care of the problem – to a degree.

Thankfully, the rise of the Internet and the advent of online marketplaces has presented a unique opportunity to not only liquidate quickly but also to maximize the value of returns. As a result, asset recovery has become the easiest phase of the reverse logistics process to leverage, and can easily become the most rewarding.

The Internet has made it easy for buyers and sellers from around the world to connect. Geographic barriers have been reduced, and the ability to buy and sell has been tempered, in most cases, only by shipping costs. And as the Internet provides companies with the ability to present their product to a much wider audience than ever before, it quickly became clear that supply and demand would be the governing factor on the Internet. Enter dynamic commerce.

Online Marketplaces Grow Up

Dynamic commerce – the selling of goods and service through an online model in which prices are determined by market demand – has become an accepted business practice. B2C sites like eBay and a multitude of B2B marketplaces provide the seller with public or private forums that return true market value for their products. It offers buyers access to more product than ever before.

Today, a good proportion of B2B and B2C purchasing is done with help from the Internet – either by researching products online or by actually purchasing. Over the last five years, many corporations, recognizing this shift, have correspondingly evolved their asset recovery process. These companies have learned that online marketplaces can not only serve as a means to recover cost from returned product but, in some cases, act as a revenue stream. Given the ability to dramatically increase exposure to potential buyers, products often sell at prices well over cost, turning the channel from one of cost mitigation to revenue generation.

As corporate acceptance has grown, online marketplaces have evolved to serve the specific needs of organizations. Currently, there are three types of marketplaces that are used most frequently: the B2C public marketplace, the B2B private marketplace, and the B2B large lot marketplace.

The B2C Public Marketplace

Made popular by eBay, the B2C public marketplace is a vehicle for moving product to consumers at a very high return. Fortune 500 retailers and manufacturers have discovered that public marketplaces provide an almost endless draw of buyers. The competitive nature of the marketplace eBay and sheer number of buyers (200M+ registered users at last count) combine to produce a higher recovery per product than traditional cost recovery strategies.

Retailers find that not only is eBay an efficient and cost-effective recovery channel, but it also serves as a customer acquisition tool that diverts business back to their own e-commerce site.

It is important to understand, however, that an asset recovery strategy on B2C public marketplaces does pose certain challenges. Sellers are judged on each and every transaction. A good seller reputation is essential to success on online marketplaces because purchase decisions frequently hinge on your feedback ratings. Fast and accurate customer service is a requirement - mandating that an organization have internal processes streamlined to fulfill individual orders. Additionally, the decision to use the corporate brand on a B2C can influence the recovery percentage per product. It's been shown that a branded presence (Corporate Logo, returns policy, etc) has produced a 20% price premium over identical product sold through a non-branded format.

B2B Private Marketplace

Channel conflict can sometimes be a concern for companies who are considering an online marketplace strategy. For these companies, there is the B2B private marketplace – a place to optimize recovery on returned product in a highly controlled environment.

A Fortune 50 Manufacturer has developed its own marketplace where returns and refurbished product (both tested and untested) are remarketed to their distribution channel. The scarcity of product coupled with the quality of the goods has resulted in dramatic returns – both in costs recovery and revenue generation.

In the end, companies that embrace reverse logistics are likely to be the real winners across industries, and those who ignore it risk becoming surplus in today's era of global competition.

B2B Large Lot Marketplace

The B2B large lot marketplace is the perfect place for retailers and manufactures who want to sell large lots and are not concerned about channel conflict. Sites like Direct2Wholesale.com provide a direct channel for manufacturers and retailers to transact business with interested buyers. These sites aggregate wholesalers and distributors in a single marketplace which drives competitive bidding and allows the seller to recognize the highest recovery.

Lexar, a manufacturer of digital media technologies, is one company that built a branded, private marketplace to offer buyers the opportunity to bid on its returned and refurbished inventory. The results were immediate. Just four months into the launch, the online market brought in over half a million dollars a month in sales and freed up Lexar's sales force to focus on higher margin product.

The real beauty of an asset recovery online marketplace is this: Buyers bid prices up rather than negotiate them down – driving the maximum yield from each product sold. "I'd rather sell through our private marketplace than to an individual buyer," said John Forrester, Lexar's senior web marketing manager. "You never know when a product will incite heated bidding."

Benefits and Words of Caution

In addition to the central benefit of returning a higher recovery than traditional strategies, online marketplaces provide a number of other benefits. Online marketplaces serve as an entrιe to millions of new customers, a natural extension to other online channels, a unique branding opportunity, and a place to test prices.

When prices are free to move in response to supply and demand, true market value is revealed. Using dynamic pricing as the ultimate market research tool, retailers can determine if they are under- or over-valuing products.

Online marketplaces do not limit product to returns. In fact, excess inventory, b/c stock, and, believe it or not, scrap work equally well. Given the global economy and the ability to reach so many buyers, the old adage that "one man's trash is another man's treasure" has never been truer.

While online marketplaces can provide great benefits, they must be understood to be effective. It is important that the seller feel confident with its internal processes – particularly fulfillment, before selling anything. Initial miss-steps can produce long-term negative effects. Pricing flexibility – especially in regards to starting prices – can determine the success or failure of an auction. Pricing too high may limit buyer engagement and pricing too low without knowledge of the buyer market may result in unacceptable returns. As in all other areas of business, the workings of online marketplaces must be understood before any decisions are made.

Once understood and leveraged correctly, online marketplaces become an essential part of the reverse logistics process. If you haven't already, look at your returns and ask yourself, "Am I maximizing value?" If you're not sure, consider online marketplaces - your buyers await.

Jim Magnanini is the Vice President of Sales for ChannelAdvisor's Manufacturing Business Unit. For the past eight years, Jim has advised companies who use online marketplaces to resolve excess inventory issues. He holds a BA from the University of Delaware and an MBA from Rutgers University.

Reverse Logistics Magazine, Winter/Spring 2006


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