Nintendo Solves Return Dilemma; Helps Entire Industry Improve Boosts Bottom Line Through Electronic Product Registration

In retail, there's no bigger asset, no bigger security risk, than the products you sell. Every year, retailers and manufacturers lose tens of billions of dollars due to unverifiable product returns, product return fraud and theft. And it's not always from consumers; according to the National Retail Federation, in most retail categories more than half of all theft is employee related. And many of these products are later returned for cash or credit.

So for manufacturers and retailers, there's nothing more important than protecting those assets through every means possible: by better inventory management, point-of-sale tracking, and active loss prevention and asset recovery procedures.

One company, gaming giant Nintendo of America, Inc., decided to address this issue to give themselves, and their retailers, a better system to control their costs and increase their profitability by creating a mechanism to reduce unwarranted and fraudulent returns. The system developed, POS Electronic Product Registration, has not only benefited Nintendo, it's become a valuable tool for manufacturers and retailers throughout North America.

POS Electronic Product Registration – Its Origins
As the popularity of electronic gaming systems grew throughout the 1990's, Nintendo realized that its profitability was being greatly impacted by the number of product returns that retailers were accepting.

"The number of products being returned was very concerning because it not only affected our bottom line, but it seemed to indicate we might have a product quality issue," said Cammie Dunaway, EVP Sales & Marketing, Nintendo of America. "But upon taking a closer look at the returns, we realized that it was really an issue of our retailers not having the tools to enforce return guidelines and their inability to detect fraud."

So in an effort to reduce fraudulent and ineligible returns, and to create visibility to the full product logistics lifecycle, Nintendo developed a methodology that would give their retailers a foolproof system to track individual products throughout their lifecycle. This system was designed to ensure that everyone in the product chain – manufacturers, retailers, and consumers – was being treated equitably and properly.

The system developed and patented, POS Electronic Registration, includes proprietary methodologies, such as vendor product registration, trending and analysis, and exception reporting and alerts, which would enable the company and its retailers to track individual products by their serial numbers from their moment of purchase.

How It Works
POS Electronic Registration employs the combination of a product's UPC number with its serial number to establish a unique identifier, or "fingerprint," for each individual product. When a product's unique identifier is scanned at point-of-sale, 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 or credit card information. But when this product fingerprint information is established and recorded, the retailer and manufacturer have an identifiable date of purchase, establishing the start of the warranty and return periods.

When a product is returned, the retailer has only to scan the unique fingerprint on the product (currently the UPC and serial numbers) to find out if the product is eligible for return. If the product has a verifiable purchase record and falls within the return policy guidelines, the clerk simply accepts the product and issues the appropriate credit or refund. If it does not meet the guidelines, the system also provides the manufacturer warranty information and the clerk can easily show the customer why it is ineligible.

The system is as flexible as the retailer wants it to be, but in all cases creating a streamlined and systematized process. Because product warranty and return policies for each product are programmed into the system, completely automating the process, clerks need little training. When the product is scanned, the system does a real-time query to 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. And if the product needs repair, the system can also be programmed to give the customer a list of local and manufacturer-approved repair facilities as well as the warranty coverage eligibility.

In the case of major holidays, such as Christmas, where 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 warrantees and return eligibility terms on popular products on select dates - such as Christmas Day - rather than on the actual date of purchase.

In each case where a product return is attempted, the activity is recorded in the product's transaction history. All of this data can then be readily accessed and analyzed by management.

Building a Better Mousetrap

Given these tools, Nintendo's retailers were able to reduce, even eliminate, returns of ineligible products. Said Dunaway, "Giving our retailers the right tools to verify returns resulted in a 72% reduction in return rates. Anyone in retail or manufacturing knows the significance of that number and the boost it gave to Nintendo's bottom line."

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

"We understood then, as we do now, that our long-term success is dependent upon the well-being of all the retailers and manufacturers that serve this industry," said Dunaway. "Sharing these tools was a way we could help create a stronger, healthier channel."

Stretching the net
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, Compaq, Philips, RCA, Sanyo, Panasonic, among others, as well as many of the top retailers, such as Wal-Mart, Target, K Mart, Toys R Us, Circuit City, and Best Buy. Actual data for clients is confidential, but, on average, clients have seen a reduction in return rates of more than 30%

The return on investment (ROI) varies depending on product prices; the higher the price point, the greater the return. But across all categories, it is common for ROI rates to exceed 10:1.

In 2007, SIRAS also began working with some of its manufacturers to increase the level of protection by pre-registering products before shipments were made to retailers. By stretching its protective net in this fashion, any products that are stolen during shipment or from a retailer's inventory and are then attempted to be returned for cash can immediately be identified, and the thieves apprehended.

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

It's important to repeat that no customer's personal transaction information is ever recorded. But by being able to supply specific product transaction data, retailers have been able to improve their customer service ratings by increasing the efficiency with which they have helped customers who have lost their receipts, forgotten where they originally purchased the product (or had it purchased for them), and, as previously mentioned, referred customers to nearby repair centers.

Customers have also benefited by having a virtual, electronic "receipt" validating a product's warranty entitlement, and for manufacturers, it's resulted in a valuable tool used to track warranty eligibility, manage financial reserves and speed customer service call times.

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

The patented technology and transaction information have 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, and has also helped law enforcement officials by identifying specific products.

Seeing the advantages to law enforcement, in 2007 SIRAS piloted a new program, SIRAS P.I. (Product Information) to help law enforcement officials determine if products they've recovered have been reported stolen. The program is expanding, and accommodations are being made for law enforcement officials to not only inquire about products with a serial number search, but also add serial numbers to the database of products known to have been stolen.

Ramp Up Time
As you might expect, implementing POS Electronic Registration system is not an overnight process for most companies. Manufacturers and retailers who want to take advantage of this 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's expert 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 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.

Future Applications
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 unwarranted return of products, and the emergence of RFID technology will greatly expand SIRAS's ability to expand into previously untrackable product categories.

Peter Junger, President of SIRAS.com.
Peter is the co-inventor of SIRAS's unique POS Electronic Registration system and holds several patents pertaining to this loss prevention technology. With his extensive experience in customer service and over 15 years of experience in reverse logistics management, Peter has a proven record of developing innovative cost reduction practices and new operational strategies while improving levels in customer satisfaction. He is frequently a presenter at conferences, and a consultant to manufacturers and retailers in their efforts to contain costs and improve profits.

SOURCE:Nintendo of America, Inc.