“You know if you make a customer unhappy, they won’t tell five friends, they’ll tell 5,000 friends. So we are at a point now where we have all of the things we need to build an important and lasting company, and if we don’t, it will be shame on us.” – Jeff Bezos, Amazon founder and CEO

Brand protection is paramount in today’s internet-connected world. The explosive growth of ecommerce and social media has given rise to new, complex threats to your brand. The impact on your business can be devastating–loss of revenue, increased customer service costs, lowered customer confidence, erosion of your brand’s reputation, and exposure to legal liability. It’s critical you retain control over your brand when it comes to excess and returned goods flowing back into the market.

Unfortunately, much of the risk to your brand has shifted from the secondary market–where consumers knowingly purchase closeout, refurbished or returned merchandise–to the primary marketplace.1 Your products may be represented as new, authentic or branded goods, but what the customer receives could be anything but. This can range from used or defective products to those that have been mislabeled, recalled, or counterfeited. Sadly, an investigation by the U.S. Government Accountability Office in 2018 found nearly 50% of goods purchased through major online marketplaces were counterfeit.2

Many of these sellers lack processes for verifying authenticity and condition, or act as a pass-through and never physically handle stock. This is particularly challenging when product safety issues can be life-threatening (e.g. pharmaceutical, automotive, electronics and similar industries). After all, unauthorized dealers don’t have any contractual obligation to uphold your brand’s reputation, quality standards, or support. The problem’s become so prevalent and widespread that no industry is immune to its effects.

Regardless of whose fault it is, when the consumer’s disappointed, it leaves them feeling poorly about your brand. Just one negative experience is enough to lose your customer forever. Research shows it takes up to 12 positive experiences to repair the damage caused by a single incident.3 And with social media it takes only seconds to post a negative review, or complain to friends.

This only serves to amplify the damage, and can be disastrous to your brand’s integrity. According to Nielsen 83% of global consumers trust recommendations from family and friends above all other forms of advertising; this is followed closely by online customer reviews.4

Secret #1: Channel Management and Authorized Product Resale Safeguarding your brand begins with how you approach recovery, and the remarketing of your brand’s products. Roughly 50% of all returned goods are eventually resold into the market.5 This has also lead it to become a dumping ground for seasonal merchandise, overstocked inventory, and recalled products.

Liquidation, or selling off inventory at a significant discount, has long been the go-to model within reverse logistics. You recoup value quickly, avoid the hassle of processing returns, and make room for additional merchandise. But the threat to your brand equity and perception far exceed the pennies you recover through liquidation.

This method of recovery provides little or no visibility into the product’s chain of custody. You lose any potential data on why the return was requested, and the condition the product was received in. It’s almost impossible for your brand to make process improvements without this information.6

To make matters worse, you forfeit control over your brand when using liquidation. According to Optoro’s 2015 analysis, “the average returned product is touched 3-5 times between middle men and travels–on average–over 3,600 miles before ending up with a secondary consumer”. You lose oversight as to where and how your products are advertised, represented condition, pricing, and to who they’re sold to. Ultimately, your brand competes with itself in the market.

One way you can eliminate this threat is channel management and authorized product resale. This allows you to maintain authority over the sales channels your products are sold through, and respective pricing. The strategy also serves to restrict online sales by individual, unsanctioned dealers on third-party marketplaces (i.e. Amazon, eBay, etc.).

This has been an effective measure for companies like Apple and Nike–both of which are Amazon partners. These alliances with Amazon were formed to combat counterfeit merchandise, and limit unauthorized sales. In fact, Nike was already the top-selling apparel brand on the site even before becoming a direct supplier in 2017.7

But it was Apple’s partnership with Amazon in 2018 that lead to changes your brand can learn from. The agreement created stringent requirements for third-party suppliers of refurbished, pre-owned and open-box products. The most noteworthy stipulation: sellers must be Apple-authorized.8 This small, yet essential clause reduced their vulnerability to potential brand abuse within Amazon’s marketplace.

Similar results are achieved by obligating dealers to either buy directly from you, or exclusively through an authorized partner. This allows you to outsource returns management, refurbishment and remarketing if your brand isn’t capable of doing so. There’s numerous benefits to having this level of control over your recovery operation–primarily in the area of brand perception.

Remaining involved with the process, or aligning with a qualified provider, ensures your customers receive a consistent experience. It allows you to offer the same caliber of service you would for a brand new product: simplified returns, customer support, and a warranty policy. You also prevent brand dilution by distinguishing between new and remanufactured inventory. This adds value to your business by better understanding your customer demographics, and the market for your brand.

Secret #2: Consumer Awareness and Education Combating threats to your brand posed by unauthorized resale is an uphill battle. This often demands considerable resources, and entails arduous litigation. Surprisingly, one of the most potent remedies your brand can benefit from is also the simplest.

Consumer awareness and education is crucial to brand protection. Your customers are your greatest allies in mitigating gray market activities, and illegitimate sales. It’s no coincidence they’re first to know when and where there’s a “great deal” available on your products. After all, unauthorized sellers depend on your customers to survive too.

A survey commissioned by Canon in 2013 found 75% of consumers are concerned about counterfeit goods. It also revealed nearly 1 in 5 were duped into purchasing fake products; of those, 63% previously believed they could identify knockoffs.9 This is why consumer awareness and education plays a vital role in preserving your brand equity.

You accomplish 3 objectives by educating consumers on the risks of buying through unofficial channels:

1. Protect the health, safety, and wellbeing of your customers.
2. Limit your potential exposure to legal liability.
3. Strengthen your brand loyalty.

The danger to your customer is immense. It’s imperative they understand the personal consequences that may arise when purchasing from an unapproved source. These can range from financial issues and fraud all the way to injury or death.

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The ease at which ecommerce sites are launched has fueled the threat of identity theft. It takes mere minutes to create an online store, which makes policing unauthorized resellers a virtual Whac-A-Mole. Some misuse information provided by your customer, or sell the data to be used in other fraudulent activities. This received public attention in 2017 when a woman’s identity was stolen–and used to perpetuate more scams–after unknowingly buying counterfeit shoes online.10

Your customers must grasp potential threats to their physical safety too. There are countless examples of recalled and counterfeit products causing harm, which span across every industry. Your customer should look no further than the homes burned down by exploding “hoverboards”11, the fatalities caused by malfunctioning Takata airbags12, and the thousands killed each year due to fake or substandard medications13.

Making your customers aware of such hazards also helps avert possible liability. This is especially pertinent when third-party accessories can damage your products, or cause them to function in unintended ways. For instance, UL found generic charging cables can prevent phones from working, or trigger them to catch fire.14 This is likely the reason Apple introduced its licensing program, Made for iPhone/iPod/iPad.

But consumer awareness and education doesn’t have to rely solely on the negative aspects. Nikon includes an additional 1 year warranty to entice customers into purchasing from authorized outlets.15 Rewarding consumers for buying through appropriate, licensed channels preserves your brand image and promotes brand loyalty.

Secret #3: The Importance of Due Diligence for Waste Disposal and Recycling Consumer sentiment has abruptly shifted toward sustainability over the last few years. It’s a stark contrast from when the environment held little influence over the decisions of your brand and customer. This may explain why many still regard disposal and recycling as insignificant aspects of reverse logistics. Truth be told, this is where the greatest dangers to your brand exist.

A recent study on Corporate Social Responsibility uncovered 86% of Americans expect businesses to act on social and environmental issues. The publication also highlights 73% of consumers refuse to purchase from brands that don’t share their beliefs.16 Sustainability is now an integral component in maintaining your brand’s reputation.

This concern is often overlooked when it comes to the handling of excess and returned inventory. Close to half of retailers surveyed in 2018 continue to throw away 25% or more of their returns.17 Not only does it jeopardize your brand integrity, but also leaves you vulnerable to financial penalties and criminal prosecution.

There’s notable confusion around the legality of waste disposal and recycling within the reverse supply chain. Much of the complexity is due to differences in regulation; there are federal laws for environmental stewardship, such as RCRA, but those at the state level vary. This is a contributing factor why 6 of the top 10 retailers were fined over $100 million for improper disposal in the past decade.18

With these challenges it’s understandable why most brands outsource disposal to third-party providers. Establishing reputable partners for recycling, and waste management shields your brand from liability. Thorough due diligence is key in selecting vendors to handle the destruction of your brand’s returns. Any weakness within your qualification process can have grave consequences on your brand.

There’s a common misconception that a “Certificate of Destruction” or “Certificate of Disposal” is undeniable proof your brand’s products were destroyed. Unfortunately, it’s not. These documents are only as good as the paper they’re printed on.

This is one of today’s most insidious, least-discussed attacks on your brand. In 2017, the CEO of E-World Recyclers plead guilty to falsely certifying the destruction of counterfeit goods—after selling at least $1.45 million worth of merchandise.19 The owner of Discount Computers Inc. took a slightly different approach: replacing products’ original factory labels with bootleg stickers to appear more recent.20 Then there’s the owners behind Intercon Solutions21, and Total Reclaim22, which were caught exporting products they claimed to have dismantled; or Global Environmental Services that buried hazardous waste in a “large hole” behind their headquarters.23

Misrepresentation is a rampant problem within the waste disposal, and recycling industries. The days of sustaining a business off the raw commodities from dismantled products are long gone. It’s why many of these clandestine operations lend themselves to fueling unauthorized resale. They can be the direct cause of your brand’s excess, used or recalled inventory appearing within the market.

Protecting your brand at disposal goes beyond knowing your provider is certified or insured. It necessitates a meticulous review of their environment, health and safety (EHS) practices, processing and technical capabilities, written procedures, and material tracking mechanisms; it also requires the assessment of any downstream vendors—the final destination for processed materials or commodities. This should be coupled with an annual physical audit as well as periodic, surprise visits for your complete assurance.

References Last, F. M. (Year, Month Date Published). Article title. Retrieved from URL 1 National Intellectual Property Rights Coordination Center. (2011, November). Intellectual Property Rights Violations: A Report on Threats to United States Interests at Home and Abroad. Retrieved from https://www.iprcenter.gov/reports/ipr-center-reports/IPR Center Threat Report and Survey.pdf/ 2 United States Government Accountability Office. (2018, January). GAO-18-216, Intellectual Property: Agencies Can Improve Efforts to Address Risks Posed by Changing Counterfeits Market. Retrieved from https://www.gao.gov/assets/690/689713.pdf 3 Halpin, N. (2016, March). The Customer Service Report. Retrieved from https://www.businessinsider.com/intelligence/research-store#!/The-Customer-Service-Report-for-E-commerce/p/63404105 4 The Nielsen Company. (2015, September). Global Trust in Advertising. Retrieved from https://www.nielsen.com/content/dam/nielsenglobal/apac/docs/reports/2015/nielsen-global-trust-in-advertising-report-september-2015.pdf 5 Greve, C. & Davis, J. (2012). An Executive’s Guide to Reverse Logistics: How to Find Hidden Profits by Managing Returns! Charleston, SC: Greve-Davis. 6 Optoro, Inc. (2017, April). Making Reverse Logistics Part of Your Sustainability Strategy. Retrieved from https://www.optoro.com/2017/04/17/making-reverse-logistics-part-sustainability-strategy-free-white-paper/ 7 Germano, S. (2017, June 29). Nike Confirms Partnership With Amazon. Retrieved from https://www.wsj.com/articles/nike-reports-sales-gain-despite-weak-growth-in-north-america-1498770462 8 Martin, J. (2018, November 11). Apple pumps up its Amazon listings with iPhones, iPads and more. Retrieved from https://www.cnet.com/news/apple-pumps-up-its-amazon-listings-with-iphones-ipads-and-more-xr-xs-watch/ 9 Canon U.S.A., Inc. (n.d.). Did You Know. Retrieved from https://www.usa.canon.com/internet/portal/us/home/explore/product-showcases/about-counterfeits/did-you-know 10 Sky UK. (2017, September 25). Identity stolen after buying counterfeit shoes [Video file]. Retrieved from https://news.sky.com/video/identity-stolen-after-buying-counterfeit-shoes-11051288 11 Roesgen, S. (2015, November 29). ‘Exploding’ hoverboard blamed for destroying Lafitte family’s home. Retrieved from https://wgno.com/2015/11/29/exploding-hoverboard-blamed-for-destroying-lafitte-familys-home/ 12 Tabuchi, H. (2016, April 13). As Takata Costs Soar in Airbag Recall, Files Show Early Worries on Financial Toll. Retrieved from https://www.nytimes.com/2016/04/14/business/as-takata-costs-soar-in-airbag-recall-files-show-early-worries-on-financial-toll.html 13 Selby, D. (2017, November 29). $30 Billion ‘Fake Medication’ Industry Is Killing People Around the World, WHO Says. Retrieved from https://www.globalcitizen.org/en/content/fake-drugs-who-vaccine-medication/ 14 Messer, S. (2018, May 4). ‘GMA’ Investigates: Inexpensive lightning cables that could harm your phone. Retrieved from https://abcnews.go.com/GMA/Living/gma-investigates-inexpensive-lightning-cables-harm-phone/story?id=54920478 15 Nikon Australia Pty Ltd. (n.d.). Benefits of Buying Local. Retrieved from https://mynikonlife.com.au/buy/benefits-of-buying-local/ 16 Cone Communications LLC. (2017, May). 2017 Cone Communications CSR Study. Retrieved from http://www.conecomm.com/2017-cone-communications-csr-study-pdf 17 Optoro, Inc. (2018, September 10). State of Retail Returns 2018: Insights on the Returns Industry. Retrieved from https://www.optoro.com/2018/09/10/state-of-retail-returns-the-latest-data-and-insights-on-the-returns-industry-report/ 18 Latham & Watkins LLP. (2015, April 6). Prosecutors Strike Gold in Retailers’ Dumpsters with Hazardous Waste Enforcement Actions. Retrieved from https://www.lw.com/thoughtLeadership/LW-prosecutors-strike-gold-in-retailers-dumpster-waste-enforcement-actions 19 U.S. Department of Justice. (2017, August 22). E-Recycling Executive Sentenced to 21 Months Federal Custody. Retrieved from https://www.justice.gov/usao-sdca/pr/e-recycling-executive-sentenced-21-months-federal-custody 20 CBS Detroit. (2013, March 24). Computer Firm, Owner Sentenced For International Environmental, Computer Crimes. Retrieved from https://detroit.cbslocal.com/2013/03/24/computer-firm-owner-sentenced-for-international-environmental-computer-crimes/ 21 U.S. Department of Justice. (2016, December 19). Owner of Two Recycling Businesses Arrested in Multi-Million Dollar Fraud Scheme Involving Landfilling and Re-Selling of Potentially Hazardous Electronic Waste. Retrieved from https://www.justice.gov/usao-ndil/pr/owner-two-recycling-businesses-arrested-multi-million-dollar-fraud-scheme-involving 22 U.S. Department of Justice. (2018, November 16). Owners of Northwest’s Largest Electronics Recycling Firm Plead Guilty to Wire Fraud Conspiracy. Retrieved from https://www.justice.gov/usao-wdwa/pr/owners-northwest-s-largest-electronics-recycling-firm-plead-guilty-wire-fraud 23 Paben, J. (2018, December 6). Former GES head receives prison sentence. Retrieved from https://resource-recycling.com/e-scrap/2018/12/06/former-ges-head-receives-prison-sentence/

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Andrew Orben
Andrew Orben is Director of Business Development at Tekovery—the brand protection company. Andrew has been proudly serving the reverse logistics and IT Asset Disposition sectors for over a decade. Andrew helps OEMs safeguard brand equity, and maintain complete control over excess and returned merchandise. For more information, Andrew may be reached at (914) 226-8322 x114, or via email at aorben@tekovery.com.