Stop Playing Games With Returns

Apr 1, 2007 12:00 PM

Every year, retailers and manufacturers lose billions of dollars due to product returns, fraud and shrinkage. Gaming giant Nintendo of America Inc. decided to address these issues to give themselves, and their retailers, a system to control costs and increase profitability.

As the popularity of electronic gaming systems grew throughout the 1990s, Nintendo realized that its profitability was being negatively impacted by product returns.

“We were concerned at the number of products being returned, and how it was affecting our bottom line,” says Perrin Kaplan, Nintendo's vice president of marketing and corporate affairs. “When we took a close look at the returns, we realized that it was not a product quality issue. It had more to do with our retailers not having the tools to enforce return guidelines and with their inability to detect fraud.”

To reduce fraudulent and ineligible returns, Nintendo developed a methodology to allow retailers to track individual products throughout their life cycle. This system was designed to ensure that everyone in the product chain — manufacturers, retailers and consumers — was being treated equitably and properly.

The POS Electronic Registration system includes proprietary methodologies, such as vendor product registration, trending and analysis, and exception reporting and alerts to enable individual products to be tracked by their serial number from the moment of purchase.

POS Electronic Registration uses a combination of a product's UPC number with its serial number to establish a unique identifier, or “fingerprint,” for each product. When a product's unique identifier is scanned, either manually or via RFID, the information is transmitted to a central database, where it is stored with the retailer's transaction information.

To protect the privacy of the consumer, the transaction data is logged without recording any customer information. But when the product fingerprint information is established and recorded, the retailer and manufacturer have an identifiable date of purchase from which to track the start of the warranty and return periods.

When a product is returned, the retailer scans the unique fingerprint on the product (currently the UPC and serial numbers) to find out if the product is eligible. If the product falls within the warranty and return policy guidelines, the clerk accepts the product and issues the appropriate credit or refund. If it does not meet the guidelines, the clerk can easily show the customer why it is ineligible.

The system is as flexible as the retailer wants it to be. Because product warranty and return policies for each product are programmed into the system, thus completely automating the process, clerks need little training. When the product is scanned, the system does a real-time query on the central database, which feeds back instructions based on the retailer's return policy. The system can be designed to display a list of accessories that should accompany the product being returned. If the product needs repair, the system can also be programmed to give the customer a list of local and manufacturer-approved repair facilities.

In the case of major holidays, such as Christmas, when purchasing may happen well in advance of when the gift is given, the system can be instructed at the client's request to “start the clock” for warranties and return eligibility terms on select dates — such as Christmas Eve — rather than on the date of purchase.

When a product return is attempted, the activity is recorded in the product's transaction history. The data can then be accessed and analyzed by management.

Given these tools, Nintendo's retailers were able to reduce, even eliminate, returns of ineligible products. Says Kaplan: “Taking control of this process resulted in a 72 percent reduction in return rates. That's a huge number, and it represented a significant boost to the company's bottom line.”

Knowing that such controls would be of benefit to other manufacturers and retailers, but also realizing that other manufacturers — especially competitors — might not want Nintendo to have access to their sales and return data, Nintendo created a separate, independent and wholly owned subsidiary company: SIRAS.com.

“Having a strong, healthy base of retailers and manufacturers is important to the overall success of our industry,” says Kaplan. “Sharing these tools throughout the industry was a way we could help in that effort.”

Today, POS Electronic Registration has been implemented by many of the world's top consumer brands, including Sony Computer Entertainment of America, Nintendo, Hewlett Packard, Philips, RCA and Panasonic, among others, as well as many of the top retailers, such as Wal-Mart, Target, Kmart, Toys R Us, Circuit City, and Best Buy. Clients have seen a reduction in return rates of 37 percent.

“The return on investment (ROI) varies depending on product prices; the higher the price point, the greater the return,” says Peter Junger, president of SIRAS.com and co-inventor of the registration system. “But across all categories, it is common for ROI rates to exceed 10:1.”

While the financial benefits of reducing returns is obvious and quantifiable, POS Electronic Registration has delivered some unintended, yet valuable, benefits for retailers, customers and law enforcement officials.

By being able to supply product transaction data, retailers can improve their customer service ratings by increasing the efficiency of helping customers who have lost their receipts or forgotten where they originally purchased the product (or had it purchased for them). Customers have also benefited by having a virtual, electronic “receipt” validating a product's warranty entitlement. For manufacturers, it is a valuable tool used to track warranty eligibility and manage financial reserves.

But an even broader application has been the system's ability to prevent retail fraud and to help track down and catch thieves.

The transaction information has helped retailers track down customers who have attempted to alter, forge or swap serial numbers on products or on receipts. Additionally, the system has been used to help track down and recover stolen items. In cases such as the shoplifting of items that have been pre-registered, the system is able to identify those that have bypassed POS registers. To aid in the recovery process, the system can be instructed to flag any of these pre-registered products for cross-retailer return attempts.

Implementing POS Electronic Registration system is not an overnight process for most companies. Manufacturers and retailers who want to take advantage of the technology must allow sufficient time for planning and implementation. For manufacturers, this might involve serialization changes to comply with registration standards, such as the labeling of both the product's UPC bar code and its serial number bar code on the outside of the packaging. With these standards in place the products can be scanned quickly and efficiently at the point of sale.

For the retailer, it means working with SIRAS' IT and client services teams to encode the retailer's POS system to prompt for the serial number scan when the UPC of a participating product is entered, and then to transmit the transaction data to the central database. Each product transaction file is appended with the appropriate manufacturer warranty information for each product, as well as the retailer's return policy guidelines.

While its initial applications have been in the registering of popular gaming and other consumer electronics products, POS Electronic Registration is not limited to these markets. In fact, it can be applied to any industry where tracking serial numbers can help eliminate the return of products that were stolen or whose warranties have expired or are not eligible for return for other reasons.

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© 2012 Penton Media Inc.

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