moving your reverse supply chain up the value chain:

Moving Your Reverse Supply Chain Up the Value Chain:How Effective Pricing Models in the Secondary Markets Drive Brand Growth

LiquidityServices.com

Table of Contents

Introduction ............................................................................................................. Page 3

How It Works: The Nuts & Bolts of Reverse Flow Pricing Models ..........................Page 4

Benefits of Consignment and Revenue-Share Pricing Models ...............................Page 5

How Pricing Models Play a Role in Raising Value Expectations of Reverse Flow Service Providers ..........................................................................Page 6

Conclusion ..............................................................................................................Page 10

Returns and overstock goods are part and parcel of the consumer retail market. With e-commerce slated to continue growing and online return rates consistently higher than those of in-store purchases, having a clear and proven strategy for these “B” goods is key to brand strength. Retailers and consumer brands that plan strategically can grow their share of market and wallet with each target buying audience while maintaining positive brand experiences and protecting and reinforcing “A” stock strategies. Organizations must effectively align their reverse supply chain vendor relationships with their strategies to fuel brand growth. What happens to a product after it changes hands shouldn’t be an afterthought. Rather, a smart and effective reverse supply chain must include strategic vendor relationships and pricing models that will yield maximum benefit. The most progressive industry leaders rely on consignment or revenue share models to drive brand growth. In turn, this brand growth leads to improved marketing for “B” stock goods, elevated customer service for the secondary market, and maximized return on their surplus product. This white paper focuses on how retailers and consumer brands can optimize their relationships with reverse supply chain partners through innovative pricing models that reinforce their strategy and expected level of partnership.

Introduction


How It Works: The Nuts & Bolts of Reverse Flow Pricing Models

Purchase ModelPurchase models are typically preferred when cash up front is required and the seller has no interest in gaining greaterrecovery. In this traditional model, vendors purchase the goods based on a fixed price, which guarantees a specific cash return to the bottom line.

This model moves product off the financial books while generating an immediate cash return. But it can also leave money on the table, since sellers do not share in the final value the vendor recovers for the product. And since fixed prices can also fluctuate based on the seller’s contracts and product mix, sellers often expend significant administrative resources on figuring these new prices.

Consignment ModelIn a consignment model, vendors receive a percentage of the sales revenue, incentivizing them to maximize return for the surplus product. Forward-thinking organizations choose consignment vendors that can appropriately market their surplus to channel(s) for the right segments, leveraging the right communication mediums, accurately setting product expectations with your target customers, and merchandising. Additionally, sellers should hold consignment vendors accountable for providing a level of informed customer support that facilitates the best possible brand experience with the “B” stock product. To obtain proof of due diligence and quality assurance, retailers and consumer brands should require vendor transparency and reporting throughout the entire reverse supply chain lifecycle.

Revenue-Share ModelRevenue-share models combine the benefits of a consignment model – a percentage of the final sales revenue for vendors – with a cash-up-front model for the surplus goods.

Specifically, an agreed-upon contract amount is paid per item, a threshold is set on the remaining recovery, and the final total is split between the provider and client based on this threshold. Since the vendor assumes more risk in this model, the total return back to the seller is not as high as with the consignment model. But revenue sharing is an ideal alternative if an organization requires its surplus product to be off its books when it leaves its facility, yet also wants to share in the potential boon of recovery and enhance its brand in key secondary markets.


Benefits of Consignment and Revenue-Sharing Models

Quality assurance of the right brand experience

Increased credibility

Mutually aligned incentives for maximum results

Better suited to handle any product mix and velocity

Inventory management and all involved tasks transferred to the vendor

Benefits of Consignment and Revenue-Share Pricing Models

Quality Assurance of the Right Brand ExperienceTo ensure your brand is being managed appropriately, your organization should require a high level of detail from vendors about each transaction of your products they make in secondary markets. Full transparency into how products perform in secondary markets can help inform inventory decisions for retailers and influence product enhancements for manufacturers.

While sellers usually receive reporting information under the traditional purchasing model, they aren’t always provided with sufficiently deep data on product recovery. With the more strategic partnership approach offered by consignment and revenue-share models, retailers and consumer brands can receive fully transparent results broken down to the transaction level. This information drives vendor improvement and allows sellers to better understand product performance.

Increased CredibilityChannel management can play a key role in helping your business achieve its larger strategic goals. If you’re a manufacturer concerned about secondary markets affecting your “A” product pricing or a retailer looking to drive customer loyalty, then the credibility of a multi-channel approach with best-in-class marketing and buyer customer support can add value to your business.

By collaborating and sharing the risk with a trusted reverse supply chain partner, you empower smarter reverse supply chain behavior and create a relationship in which both vendor and seller benefit. This ultimately adds value to this area of your business and enriches the vendor/organization partnership.


Mutually Aligned Incentives for Maximum ResultsIf your enterprise is geared toward achieving the highest recovery possible in your reverse supply chain, it’s important to align your model toward this objective. If you do not have a pricing agreement that permits flexibility, then you are likely tossing away potential upside you might gain in each transaction. The compound impact of this loss can result in millions of dollars of lost cash.

With a consignment or revenue-share model, you are most likely to achieve the highest net recovery possible because you are financially aligned with your vendor to share in the recovery’s upside. And unlike the purchase pricing model, in which market pricing fluctuations can hinder recovery, revenue-share models provide a solution for market volatility.

If your enterprise is geared toward achieving the highest recovery possible in your reverse supply chain, it’s important to align your model toward this objective

How Pricing Models Play a Role in Raising Value Expectations of Reverse Flow Service Providers

Working with the world’s top retailers and B2C brands, Liquidity Services champions best practices to ensure our clients’ goals are met – whether they be maximizing investment recovery, creating a more efficient reverse supply chain, furthering sustainability goals, or growing their brands. The following case studies are real examples of client programs, which offer some visibility into how pricing models play a part in driving strategic goals.

Examples of Effective “Consignment” Models

Multinational Hardware and Electronics Company Achieves Enhanced Brand Perception and Massive Recovery Growth

One of the world’s top PC manufacturers set a goal to improve its market position and overall brand perception. With initiatives already in place to improve its forward supply chain, the company focused on a strategic effort to improve management and controls of returned and overstock product in the secondary market. Rather than expend valuable internal resources on this niche area, the company connected with Liquidity Services to serve as its certified remarketing partner.


To meet the client’s high investment recovery goals on overstock and returned inventory, Liquidity Services customized a secondary market solution using a consignment pricing model. This solution provides the following results for the client:

High-Quality, Consistent Customer Experience Across All Secondary ChannelsLeveraging one partner as the official refurbisher and remarketer ensures the quality and condition of the product is aligned to meet buyers’ expectations acrosseach sales channel (B2B and B2C). It also ensures that the customer experience and interaction is positive and professional, and that the logistics are handled in a timely and streamlined manner.

Increased Positive Perception of “A” GoodsThe proper management and quality control of secondary market products and customer interactions increases positive brand perception in Tier One B2C channels. Multiple, non-approved resellers are prevented from accessing secondary market activities, diminishing brand risk for the client.

Ongoing Growth in Customer Base for Grade A and B Stock ProductsBy leveraging multi-channel platforms for returned and refurbished merchandise, Liquidity Services helps the client reach a broader customer base, which is segmented by condition and volume of product being sold. This results in faster sales velocity and recovery.

Inventory Reconciliation SupportLiquidity Services’ innovative Electronic Data Interchange (EDI)-driven technology solution gives the client access to accurate and transparent information on the receipt and tracking of products.

Net Recovery Growth of 45-50% Over Prior RecoveryEffectively managing marketing and sales activities in the secondary market drives higher recovery value, which directly and positively impacts the client through the economically-aligned consignment pricing agreement.

50% The client achieved a net recoverygrowth of 45 – 50% over prior recovery efforts


Global Software Company Sells Inventory Backlog in One Day, Achieves Optimal Recovery Value

A leading global software company experienced a backlog of 9,000 returned consumer electronics products and sought Liquidity Services, its trusted reverse supply chain partner, for a solution. After evaluating the product and the company’s needs, Liquidity Services designed a consignment-based promotion to maximize overall revenue return on the backlogged units and allow inventory to be immediately sold. Highlights of this successful promotion included:

Positive Exposure of Brand to More ConsumersAn omnichannel sales strategy results in a greater number of buyers viewing and bidding on items through eCommerce sites such as Liquidation.com, Secondipity.com, and other white label online channels, leading to increased recovery values.

Brand Protection in Primary and Secondary MarketsLeveraging one strategic partner ensures product and customer interactions are handled in a professional, timely, and effective manner, leading to buyer loyalty in not just the secondary market but also Tier One sales channels.

Risk Mitigation with RTV AgreementsProper screening to identify “no sell” brands and products protects agreements with OEMs and alleviates potential compliance issues.

Speedy and Flexible Outbound TransportationKeeping the dock door clear of secondary market inventory creates space and enables resources to focus on inbound, Tier One inventory. Additionally, a flexible solution is key to managing the ebbs and flows of product volumes associated with seasonal business.

Increased Recovery by 14-23%Through the revenue-share model and aligned incentives, Liquidity Services provided a deeper level of service that generated higher recovery values, which were shared with the client.

All 9,000 of the company’s inventory backlog units were sold in just one day


Top Warehouse Club Uses Strategic Pricing Model to Enhance Brand and Increase Bottom Line Returns

A national warehouse club – and Liquidity Services’ client since 2003 – needed to revise its secondary market strategy for returned and overstock video game consoles. Liquidity Services helped the client launch a more aggressive sales platform under a revenue-share model, allowing it to generate higher recovery values while protecting relationships with its consumer electronics vendor partners. By implementing this new strategy, Liquidity Services delivers the following benefits to the client:

Complete Transparency and Detailed ReportingLiquidity Services communicates quickly yet thoroughly with all 450 store contacts, providing them with logistics details,reconciliation reports, data wiping confirmations, payment transactions, and written documentation across all activities performed.

Positive Exposure of Brand to More ConsumersAn omnichannel sales strategy results in a greater number of buyers viewing and bidding on items through eCommerce sites such as Liquidation.com, Secondipity.com, and other white label online channels, leading to increased recovery values.

Streamlined Shipping and Minimized Freight CostsConsolidating the video gaming console program on a national basis – covering 450+ stores – enables the client to move product on a geographic-based distribution system to Liquidity Services’ four national warehouses, saving time and money on transportation costs.

Brand Protection and Peace of Mind for ClientBy conducting data wiping on all electronics products, the client can ensure that private customer data is protected.

Nearly 10% Increase in Bottom Line Return for the ClientThrough providing a more strategic level of service, Liquidity Services generates higher recovery values from itsremarketing efforts and shares a higher percentage of the upside through the revenue-share model.

10% The client achieved a nearly 10%increase in bottom-line return

REFERENCES

“The Growth of Online Shopping.” WWW Metrics. Retrieved from http://www.wwwmetrics.com/shopping.htm

“Liquidity Services 2012 Annual Report.” Retrieved from http://www.liquidityservicesinc.com/uploads/documents/annual-report-2012.pdf


Conclusion

Whether growing same store comparisons or your consumer brands, an effective strategy encompasses your reverse supply chain and surplus products. A more strategic and value-added relationship with your reverse flow service provider can mean the difference between millions of dollars and a strong brand, or unrealized potential and an injured reputation. A trusted, established partner will not only help to effectively optimize this area of the business and maximize return, but will demonstrate compliance with your desired brand experience and facilitate better decision-making to grow your market. The pricing model it employs will reinforce the higher level of expectations set for the relationship. Revenue sharing arrangements and consignment models enable retailers and consumer brands to raise the bar on reverse flow service providers – and to achieve better business results.

About Liquidity Services

Liquidity Services (NASDAQ: LQDT) is the leader in managing surplus across the globe to maximize return, more efficiently and more strategically. No matter the type of surplus asset or where it is located, we optimize and execute surplus management strategies to achieve your business goals. We are the industry innovator, leveraging insights from over 500,000 annual transactions and $1 billion in annual sales proceeds to continuously pioneer a superior model for managing the reverse supply chain. With Liquidity Services, you have a partner who maximizes the total value you can expect for your surplus – higher recovery, more efficient processes, simplified and consistent operations, global coverage, lower risks, sustainable solutions, and service from people you can trust to deliver results. Learn more at LiquidityServices.com.

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