Returns are undesirable and might hurt, but once they exist have to be managed. It is necessary to design sound operational processes for reversal logistics, quality control, rework and scratch management, but also it is crucial to set the correct price that will be paid for the returned goods. Setting the price that will be paid to dealers and or customers for the goods that return to the factory or the warehouse, can become an strategic tool if managed purposely. It is necessary to consider at least the following aspects:1. Costs: Does in average the value of the returned goods cover the price paid and the cost of managing returns. How much is the company willing to spend for accepting returns?
2. Costumer Satisfaction: Do customers see that the offered price for returns is fair?.Has been communicated correctly the return policy that will be applied? Does it contribute to create a loyal customer base?
3. Logistic Coordination of the Channel: By setting the price for returned goods the supplier acts as a channel coordinator as influences the behavior of retailers. If the supplier proposes a full buy back policy for all unsold items, he strongly promotes high inventory levels at the retailer point. In the other extreme, if the supplier does not accept returns for unsold or perished items, retailers will work with tight inventories.
4. Profit Sharing through the Channel: Companies that work in some sectors such as newspapers, video rental and perishable goods use the pricing of returned goods for increasing the revenue and profit of the total chain as well as to allocate the “right” amount of gain to each participant of the channel. Some publishers, movie studios and food producers offer their customers very favourable pay back conditions for returned goods and counterbalance the supported cost by agreeing on revenue sharing contracts that allow them to capture part of the additional revenue that comes from having enough inventory at the retailer during peaks of demand.
