What is your TRV? What is your RAR? Or, are you a recovering “returnaholic”

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Since three letter acronyms are de rigueur in the consulting world, I thought I’d start with them.  TRV is totally made up but it stands for Total Relationship Value.  RAR is real and I’ll discuss that later.  In this age of Big Data, it should come as no surprise to anyone that retailers have been keeping tabs on what you return.  It turns out that close to 10% of total sales are returned (about $264 Bn) so it is a big problem.  Retailers have been keeping track to make sure that people are not abusing the policy or even worse, defrauding the retailers (switch label on a $500 item for a $50 item before purchasing and only paying $50 and then returning it with the original label to claim a $500 refund).  Given the recent disclosures about the NSA, this is now creating some concern and controversy and I think has a number of implications for us.

If your company is collecting data like this on consumers, then it needs to worry about the negative perception that it is creating.  There have been recent lawsuits against this practice and a fair amount of backlash.  “There should be no secret databases. That’s a basic rule of privacy practices,” says Ed Mierzwinski, consumer program director at the U.S. Public Interest Research Group. “Consumers should know that information is being collected about them.”  Even more importantly, your company   needs to worry about protecting the data it collects because the loss of that private data could result in lawsuits against it..  And since collection of this data is outsourced to a 3rd party in most cases, your contract with them needs to make sure that this risk is identified and dealt with.  Otherwise, your pass- through legal risk could be significant.  The reputation risk and market share risk could be even worse.  You may want to check on this but more importantly, weigh the total risk  against the actual loss due to return abuse.

On the other hand, do you analyze the return behavior of all your customers (whether you are in the B2C or B2B world) and then include it in measuring the TRV of your customers?  Because different groups are tracking different metrics (sales, margin, returns etc.) inside your company, we typically find that nowhere are these metrics consolidated.  You may have a customer who is perceived to be a high value customer and your entire organization treats them preferentially, till you also include their return activity.  Conversely, you may be short changing other customers whose TRV is actually higher.  And all of you familiar with the issue of Returns know that it can be a significant drain on the Supply Chain.

Of course, similarly you are also being looked at by your suppliers under the same lens.  What is your return behavior?  How does it impact your TRV as a customer to your supply base?  How does it impact the preferential treatment that you may or may not be getting?  That quick lead time order that you need may not be that quick because of your lower TRV. 

So do you know what your RAR(Return on Activity) report says?  You have one if you ever returned anything.  Saving and tracking this data for 10 years is common.  Will you need to worry about your RAR just like your credit report?  There are also indications that retailers are sharing this data amongst themselves to identify “returnaholics” and deal with them collectively.  Don’t be surprised if you’ve never shopped at Macy’s, let alone return anything, but they refuse to take back that 1st return because you are on a watch list.  Are you tracking your customers on their RARs?  Are you sensitive to what your RAR might be like as a company to your suppliers?  Apparently, BIG Data comes with BIG solutions but also BIG problems.

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Dalip Raheja
Dalip Raheja is President and CEO of The Mpower Group (TMG). Dalip has over 30 years of experience managing large organizations and change initiatives. He has worked across the spectrums of supply chain management, strategic sourcing, and management consulting.
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