International Journal of Physical Distribution & Logistics Management

Emerald Article: Life after death: reverse logistics and the product life cycle Ronald S. Tibben-Lembke

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To cite this document: Ronald S. Tibben-Lembke, (2002),"Life after death: reverse logistics and the product life cycle", International Journal of Physical Distribution & Logistics Management, Vol. 32 Iss: 3 pp. 223 - 244 Permanent link to this document: http://dx.doi.org/10.1108/09600030210426548 Downloaded on: 15-05-2012 References: This document contains references to 59 other documents Citations: This document has been cited by 8 other documents To copy this document: permissions@emeraldinsight.com This document has been downloaded 7854 times.

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Life after death: reverse logistics and the product life cycle
Ronald S. Tibben-Lembke
University of Nevada, Reno, Nevada, USA
Keywords Reverse logistics, Product life cycle, Retail trade Abstract Managing the reverse flow of product is an important ability for any company, as the recent experiences of many online retailers illustrate. Reverse logistics is a growing and important area of strategic advantage for many companies. For a long time, the product life cycle has been a valuable source of insight about the changing needs of marketing and logistics over the life of a product. In this paper, we study the way that reverse logistics is impacted by changes in sales over the product's life cycle.

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Received August 2000 Revised June 2001 February 2002

Introduction In recent years, reverse logistics has been the source of a number of academic papers (Rogers and Tibben-Lembke, 2001; Carter and Ellram, 1998; TibbenLembke, 1998; Kroon and Vrijens, 1995; Pohlen and Farris, 1992), books (Rogers and Tibben-Lembke, 1999a, b; Krikke, 1998; Stock, 1992, 1998; Kopicki et al., 1993), and practitioner articles (Jedd, 2000; Schwartz, 2000; Transport Topics, 1999). Many highly touted online retailers have suffered greatly, because they underestimated the difficulty of reverse logistics (Quick, 1999, 2000; Coleman, 2000). As the relative newness of this area of research would indicate, many companies are just beginning to understand the importance of reverse logistics, and to grapple with how to best manage their reverse logistics processes. In this paper, we will look at how reverse logistics is impacted by one of the oldest concepts in the management literature: the product life cycle. Practitioners may find that thinking about reverse logistics in terms of the product life cycle leads them to re-think some of their current practices, and academics may be interested to see how much of an impact the widelystudied product life cycle has on reverse logistics, an emerging area for research. The outline of the paper is as follows. In the next two sections, brief overviews of reverse logistics and the product life cycle (PLC) are given. Then in the main body of the paper, the reverse logistics challenges in each phase of life are considered, looking at demand from several levels. We then look at the way the life cycles of the components in products impact the reverse logistician's task. In the final section, conclusions and future research suggestions are offered.

International Journal of Physical Distribution & Logistics Management, Vol. 32 No. 3, 2002, pp. 223-244. # MCB UP Limited, 0960-0035 DOI 10.1108/09600030210426548

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Reverse logistics and secondary markets Businesses have had to consider products traveling the ``wrong way'' in the channel for many years. Terry (1869) discusses retail returns to wholesalers. Retail texts have long discussed how to accommodate customers wanting to return items and how to account for them (e.g. Beckley and Logan, 1948). Academic study of the reverse flow of products and packaging began more recently. For example, Guiltinan and Nwokoye (1975) and Lambert and Towle (1980) studied the logistics of recycling, as did Stock (1992). Murphy (1986) studied the reverse distribution of product from product recalls. Since those beginnings, the logistics of products and materials moving backwards has gathered an increasing amount of attention in the literature and in the press, as the references listed in the introduction indicate. To paraphrase the Council of Logistics Management's (2000) definition, logistics is concerned with optimizing the flow of product from the point of origin to the point of consumption. Although the definitions of what constitutes reverse logistics have varied, we will use the definition of Rogers and TibbenLembke (1999a, b), who defined reverse logistics as:
. . . the process of planning, implementing and controlling the efficient, cost-effective flow of raw materials, in-process inventory, finished goods and related information from the point of consumption to the point of origin for the purpose of recapturing or creating value or for proper disposal.

As this reverse flow arrives, the company must determine what to do with each item (how it should be ``disposed''). To do this, the company first has to identify what each item is (many returned products lack original packaging), determine its condition, find out whether that item can be sold as new, or sent back to a vendor or not, and then decide where the item should be sent (sold to a broker, recycled, or landfilled). As Stock (1998) indicates, using a centralized returns center (CRC) to sort products and packaging in the reverse flow is more efficient than performing these activities in the forward distribution center (DC). Centralizing the reverse flow creates larger volumes, which provide the critical mass needed to buy specialized equipment, and allows employees to focus solely on reverse logistics. In many European countries, vendors are required by law to take back transport packaging such as corrugated paper boxes, pallets and shrink-wrap. In the USA, this is not the case and, instead of sending such materials back to the vendor, most companies dispose of excess materials by using them to send product to their own customers (if possible), or by selling them to outside vendors (in the case of durable items like pallets) or recyclers (in the case of non-reusable items like shrink-wrap). In many European countries, vendors are also responsible for ensuring that the primary product packaging (such as the tube in which toothpaste comes) is recycled. In the case of Germany, deposits paid on purchased packages are used to fund a national collection and recycling program. In the USA, most consumer packaging is handled by residential recycling organizations. Therefore, most packaging flows to a recycling company, and does not move backwards from one stage of the supply

chain to the next. Therefore, in the remainder of this paper, we will focus on the reverse flow of product. In the case of product in the reverse flow, it will have been returned either by consumers or by other companies in the distribution chain. Retailers may return product for a variety of reasons, including: damage in transit; expired date code; product discontinued or replaced; seasonal product; retailer inventories too high; retailer going out of business. Consumers' reasons for returning products will generally include: product did not work; product did not meet consumer's needs; product is being returned to be remanufactured; returned for proper disposal. Retailers may also send unsold product to their CRCs. Despite the fact that a product may sell well in other markets, in some markets it may never achieve significant sales, and retailers may decide not to carry the product, and seek to return it. If the vendor will not accept it back, the retailer may keep the product in store and mark it down to sell it. The vendor may also send the product to its own DC or CRC, where the unsold product can often be resold to another retailer to sell as new, or it may be disposed of in some other way. Unlike product returned by partners in the distribution chain, consumer returns are unlikely to be in new condition. In this case, the product will likely be sold to one of the firms in the so-called ``secondary market,'' or ``B'' channel. These firms buy products which cannot be sold as new in the primary or ``A'' channel. These companies, (known as ``brokers'') generally specialize, dealing only with certain types of products, including: ``close-outs,'' products retailers have decided not to sell any more; ``job-outs,'' first-quality seasonal items; surplus first-quality items; and defective items. The brokers in turn sell the product to low-price ``value'' retailers in the USA or abroad. A CRC may deal with more than one firm in each category, and some brokers may specialize in certain types of items within a particular category or across categories (e.g. electronics). Product may also be returned to the retailer or the manufacturer, because the manufacturer has recalled the product. In some cases, the manufacturer may authorize the retailers to fix the product at the retail location, as generally happens with automobiles, or may send repair kits to consumers. If the product's defect cannot be remedied, the manufacturer may instruct the retailer to collect and destroy the product (so the harmful product is not re-sold) and provide the consumer with a new product. In choosing how to dispose of a product, one of the primary considerations must be the price to be received for the item. If possible, the CRC's first choice would be to receive full credit from the vendor. If this is not possible, the CRC must assess an item's condition, and determine to which firms it should try to sell a particular item. Even when credit is given, instead of returning the product to the vendor, the CRC may be allowed to broker the product. In brokering a product, the CRC must always follow the vendor's instructions. The vendor does not want to lose revenue by having secondary market sales cannibalize sales from the ``A'' channel. Also, having spent millions of dollars to

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create brand equity, vendors do not want the brand's image to be tarnished, because consumers might see the product at a value retailer or at a flea market. The vendor may specify that the retailer can resell the product, but only if it will be sold overseas or to a set of approved value retailers, who will sell the product in accordance with the vendor's requirements. Because vendors and retailers do not want to publicize product failure, companies form close relationships with brokers, founded on trust. Failure to follow vendor instructions would spell disaster for a retailer or a broker. To further protect brand equity, vendors may request that the returns processor or the broker ``de-mark'' the product, that is remove all traces of the original vendor or manufacturer's name from the product. In conversations with reverse logisticians, vendors typically want the returns processor to perform the demarking, rather than the broker, because the vendor has a long-term working relationship with the returns processor, and would have a higher degree of trust with the returns processor than with a perhaps unknown broker, who may have an incentive not to de-mark the product. In addition to protecting brand equity, de-marking also provides the manufacturer and/or retailer with protection against ``re-returns.'' Re-returns occur when a customer buys a returned product at a reduced price in the secondary channel, perhaps from an outlet store, and then returns the product for full price in the primary channel. De-marking is one sure way to prevent this. Other less dramatic methods, however, may be employed, which typically involve marking the product in such a way that it signifies that the product has been sold on the secondary market. For example, a cooking-pot may have ``not for retail exchange'' stamped on its under-side. Retailers and manufacturers face different reverse logistics challenges, because they tend to look at returns from opposite perspectives. Retailers would like to return as much product and receive as much credit as possible, while manufacturers would prefer to minimize both. Manufacturers and retailers will also not always agree on how they would prefer to see a product disposed of. As much as possible, this paper will attempt to present issues pertinent to either situation, and will indicate when a situation is particular to one party or the other. Overview of the product life cycle concept The concept of the product life cycle (PLC) has been around for a full halfcentury (Dean, 1950), and it has been greatly studied and discussed (see, for example, Gardner, 1987; Rink and Swan, 1979, for overviews of the literature). Over the life of a product, a firm does not know exactly how future sales will change from one period to the next but, typically, the sales of any one product will follow the well-known product life cycle curve. From initial concept until its cancellation, a product passes through several distinct phases (see, for example, Kotler, 2000). After the product is introduced, sales begin growing slowly, until a critical mass of consumer awareness is reached, and sales grow rapidly. Eventually, the rapid growth cools, and the product enters a sustained

period of slow growth, or level sales. Eventually, sales will decrease, at first slowly, then perhaps more rapidly. Once sales fall below some threshold level (which may be different for each company), the product will eventually be terminated, and sales will drop to zero. The life cycle is typically divided into four phases: (1) introduction; (2) growth; (3) maturity; and (4) decline. Some authors add an initial phase of development, and others add a final phase of cancellation, as shown in Figure 1. Others add another phase of saturation between maturity and decline. Although a product may pass through all of these stages, some products never reach their intended customers and fail to reach the growth phase. In the grocery industry, the failure rate for new products is estimated to be 80 to 95 per cent (Gallo, 1992). In this industry, the life cycle also does not follow this shape. Steep growth, followed by an equally sharp decline, is followed by a stable maturity phase (Jensen, 1982). Other products may go through several repetitions of the growth, stability and decline phases, as Levitt (1965) and Dhalla and Yuspeh (1976) illustrate. Some products enter decline, but then are reincarnated and enter a new ``recycle'' phase, as new markets for the product are discovered, or when a new company purchases a dying product (Kotler, 1984). There is some discussion about what constitutes a ``new'' product. Patton (1959) suggested four categories of ``newness'': (1) unquestionably new products; (2) partially new products; (3) major product changes; and (4) minor product changes. Unquestionably new products often are very expensive, have performance problems, and may have spotty distribution. Partially new products do all that

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Figure 1. Stages of product life cycle

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an existing product did, with additional features. They compete with the old product, but extend the market for the item overall. Major product changes may render the predecessor obsolete overnight, and minor product changes may give a short-term boost to sales, but do not alter the overall shape of the product's life cycle (Patton, 1959). Although it has not been directly studied, there is a belief that model changes will happen more rapidly in the early stages of a product class's life (Consumer Reports, 1978). Another important issue is the level at which the data are to be analyzed. Figure 2 shows the three levels of product life cycles that this paper will consider: (1) product class; (2) product form; and (3) product model. Some authors have referred to the lowest level as the product brand (Kotler, 1984). To help clarify these levels of aggregation, we will consider the example of a VCR throughout much of the paper, as shown in Figure 2. As the lowest line in the Figure shows, it is possible to speak about the life cycle of an individual product number at a particular company (model GTL-3.5). Also, that product may be replaced by a series of similar products, and it is possible to consider the life of the product form (e.g. a two-head VCR). Finally, it is possible to look at the overall market for this particular product class (all VCR sales). As this paper will discuss in detail, the reverse logistics impact of the life cycle position of the product model is very different from that of the life cycle position of the product class. The product life cycle concept was introduced by Dean in 1950, and much of the research has related to the changing role of marketing over the life cycle. As logistics is an outgrowth of the channel-management area of marketing, it is not surprising that the PLC has been a consideration in logistics (Stock, 1997). Some textbooks in logistics (e.g. Bowersox and Closs, 1996; Ballou, 1992; Davis and Brown, 1974), channel management (e.g. Pelton et al., 1997; Rosenbloom, 1995; Bowersox and Cooper, 1992), purchasing (van Weele, 1994) and operations management (e.g. Chase et al. 1998; Heizer and Render, 1998)

Figure 2. Product aggregation levels

discuss the impact of the life cycle on distribution. Kaminski and Rink (1984) provide a thorough overview of the role of the PLC in distribution. Purchasing has also received much attention, as Rink and Fox (1999) and Fox and Rink (1977, 1978) illustrate. As Birou et al. (1997) argue, the PLC can play a critical role in integrating purchasing with other functional strategies. Although the texts above give some discussion of how the stage of product life cycle affects distribution, few (e.g. Bowersox and Closs, 1996; Rosenbloom, 1995) discuss the matter in significant detail. As Pelton et al. (1997, p. 74) note:
Many companies either fail to recognize or do not act on the fact that the distribution and selling requirements for a product change over its life cycle.

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Although some in logistics and the closely related fields mentioned above recognize the important impact the product life cycle can have on distribution needs, this recognition is far from universal. Reverse logistics and the product life cycle In this paper, we will extend the study of logistics and the PLC by looking at how the reverse logistics needs of a company may be expected to change over three different forms of the product life cycle, as represented in Figure 2: (1) the life cycle of the product model; (2) the product form; and (3) the product class. At the product model level, changes from one model to the next will be relatively minor (``minor product changes'' in Patton's scale). When sales of the product class are growing, holding strong, or even declining, the vendors will continue to offer new models of the product, which may offer slight differences over previous models. The result is that the logistician may face relatively small or few challenges, as sales volumes shift from one model to another. However, as Rink and Swan (1979) report, the life cycle curves of brands may be much more erratic than the curves of the product form. The life cycle curve of the product form is obtained by adding up the sales of all products being sold in this particular form. In the case of the VCR, we might focus on sales of two-head or four-head VCRs, or of some other significant technological improvement, which marked a stage in the evolution of the product from one generation to the next. The changes from one form to the next might represent ``major product changes'' or ``partially new products'' under Patton's scale. The life cycle curve of the product class is the sum of the sales of all forms of the product. In the case of VCRs, we would consider sales of all product forms from when VCRs began to be sold, until the end, when the last VCR is sold. Some analysts predict that DVD technology and other set-top devices, such as TiVo (which allows users to pause and rewind live TV programs), may lead to the eventual demise of the VCR. The appearance of new products of this type would be ``unquestionably new products'' under Patton's scale.

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Product returns rates differ greatly according to the type of product (Rogers and Tibben-Lembke, 1999a, p. 7). Because the relationship between the product life cycle and reverse logistics has not been studied before, the exact shape of the relationship between product sales and returns is not known. It is likely to vary significantly between products, depending on many things, including the price of the product, whether the product is a ``high involvement'' product or not (which affects the likelihood of buyer's regret), the pace of technological change, and many other factors. In general, the level of returns may appear as in Figure 3. As product sales increase, returns are likely to increase rapidly, and then remain fairly constant as long as sales remain constant, then decline as sales decline, with some products continuing to be returned after sales of the new product have stopped. Many of the factors discussed in the paper are summarized in Table I. It summarizes many of the reverse logistics issues that must be faced at each phase of the product life cycle, for different levels of the product life cycle curve. For simplicity, some issues that may be important for all levels of the life cycle curve may not be listed in all rows of the Table. Development phase Development is an excellent time to begin considering the reverse logistics implications of the product's design (design for reverse logistics (DFRL)). In recent years, much has been learned about the importance of considering the manufacturing and logistics implications of design decisions, which has given rise to the fields of design for manufacturing (DFM) and design for logistics (DFL). Today, automakers are increasingly paying attention to how cars can be disassembled at the end of their life, known as design for disassembly (Bylinski, 1995). Many decisions made during the development phase of a product will have reverse logistics implications lasting far into the product's life, especially decisions that affect how easily customers can use the product. Designing a product so that the customer can easily and intuitively figure out how to use it will help reduce the number of ``non-defective defectives,'' or ``no fault found'' items. Non-defective defectives, or ``no fault found'' items, are products which are not defective but customers claimed were defective, in order to be able to return them. A common cause for this phenomenon is that customers cannot

Figure 3. Product returns lag sales

Product level Lower brand equity concerns Focus on cost reduction Broker demand may still be high, or decline International sales may become more attractive Returns flow stops Few brand equity concerns Donation may no longer be possible

Development

Introduction

Growth

Maturity

Decline

Cancellation

Class

Find brokers Educate consumers Plan processes for new products

Form

Predict return rates for new products

Identify quality problems ``Early adopters'' Learn how to process new products High brand equity concerns New product ``advances'' may confuse consumers High return levels continue Brokers know what to expect Small procedural differences from previous products Fewer quality issues Learning to deal with new product Donating product begins to be more attractive Secondary market demand likely still strong ``Returns abuse'' concerns Return volumes begin to lessen Secondary demand still strong Brand equity concerns may still exist Secondary demand may still be strong Return to vendor, if possible Secondary demand still strong International sales still attractive

Large volumes appear High brand equity concerns Quality issues may arise with increased production Quality issues Brand equity concerns

Model

Previous procedures likely to work Current brokers likely interested

Table I. Major reverse logistics issues, by life cycle phase

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understand how to use the product properly, but are unwilling to admit this to the store's returns processing staff (Rogers and Tibben-Lembke, 2001). Product packaging also has an important impact on return rates. The amount of packaging and the ease with which customers are able to get products back into the packaging will have an impact on the CRC's ability to identify incoming product and on the amount of product damaged during the reverse flow, which impacts the CRC's revenues. Making the product's instructions clear and concise will increase the likelihood that customers read and follow them. Customers who try to read and follow the instructions are less likely to become frustrated with the product and to want to return it. Also, providing toll-free telephone numbers in the packaging or with the instructions for customers to ask questions can help reduce return rates. Product class development Ease of use is an important consideration in the design of any product but, in the design of a completely new type of product, this would be especially true, because customers would have had no prior experience with the product. One of the important marketing functions at this stage is to inform potential consumers about the product (Kotler, 2000, p. 306). As a part of the marketing for a product, the pictures and text on the packaging have to inform the customer about what the product does. For example, today, it is likely that shoppers would know what a VCR does, and the packaging would not need to tell them that it can record television shows. However, for a new product like the TiVo mentioned earlier, many shoppers will not be aware of it and not know that it records TV shows, and can be used to pause and rewind live TV shows. Informing the consumer better about what a product will and will not do should reduce the rate of non-defective defectives. In addition to product design considerations, during the design stage, the reverse logistician can begin making plans for dealing with the products that will eventually be returned. In the case of an entirely new class of product, secondary market buyers may not be familiar with the new product, and the firm would need to educate these firms about the product, as well as the possibilities for secondary market sales in the future. On the other hand, brokers may expect high demand for the new type of product in the secondary market, and beginning earlier to look for brokers may result in receiving higher bids from the brokers. For example, DVD recorders are currently a very new product, retailing for a very high price. If a firm were planning to sell these products in the secondary market, it would want to carefully examine the secondary market firms interested in buying them, both to give it time to negotiate a good price, and also to make sure that the firm will follow the manufacturer's wishes to avoid affecting sales in the primary channel. It may also be possible to begin considering what types of difficulties customers may have with products that could result in product returns, and begin mapping out plans for disposing of products facing each of these conditions.

Product form development The development phase of a new form of a product should not present as many challenges as the development phase of a new product class, because it is a partially new product, or represents a major product change, in Patton's terminology. During this phase, the reverse logistician may attempt to learn how the revised product will differ from the previous versions of the product, to try to anticipate how returns may differ from the previous version, and to make plans for how to deal with any challenges that may be encountered with the revised product. Information can be gathered about what the vendors' returns policies are expected to be like, and CRC managers may begin to contact their secondary market brokers, to learn which companies will be interested in the product. Product model development When a new model of an existing product is being developed, few challenges are to be expected in the development phase. Because the new product has minor changes compared with the old, brokers that buy the current product are likely to be interested in the revised product, and the RL policies and procedures for dealing with the old product are likely to work well with the new. Introduction phase Product class introduction In the introduction phase of a new class, sales volumes will start low and grow slowly. Because returns lag sales, returns volume would be expected to be low at this point. If there are any significant quality problems, the introductory stage may have higher return rates than later periods, but because of the lower sales volumes the reverse volume should generally be much lower than in later phases of the growth curve. The reverse logistics function can play an important role in fixing quality problems by collecting information on returned product, looking for common problems, and providing valuable feedback to production or engineering for eliminating these errors. Rogers and Tibben-Lembke (1999a, p. 56) give an example of a CRC noticing a product being returned in unexpectedly high volumes, and working with the manufacturer's engineers to discover the underlying quality problems causing the returns. Reverse logistics employees can help discover production problems at any phase in the life cycle, but in the introduction phase, while some final changes may be being made to ``tweak'' the design of the product, problems requiring engineering solutions may be more likely to be found. Because the sales volumes are still small during the introduction phase, returns volume is expected to be small here, although two conflicting factors will influence this. As discussed above, more defects may occur in the introductory stage; this will be especially true with the introduction of a completely new class of product, as such problems were part of Patton's

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definition of an entirely new product. On the other hand, in the introductory stage, many of the customers may be ``early adopters,'' people very interested in that type of product. These early buyers may be more technically savvy, and better able (and more willing) to handle the problems that will occur with the new product. Depending on the relative size of these two forces, the introductory stage may have higher or lower return rates than later periods (as a percentage of sales), but because of the lower sales volumes the reverse volume will be lower than what will follow in later periods. Product form introduction In the introduction phase of a significantly revised product, some of the challenges faced in the introduction of an unquestionably new product may not be faced. Although the product is a significantly revised version of a previous product, the company has experience producing that type of product. The product's difference from previous products may lead to some manufacturing challenges, but the magnitude and scope of production or engineering difficulties are not expected to be nearly as great as with the introduction of an entirely new product. If consumers are familiar with the product class from having purchased previous forms of the product, they may be able to understand the new product form easily, and returns rates may be lower in the introduction phase, especially among early adopters. This will depend on the length of the product life cycle. For products with very long life cycles, like color televisions, anyone purchasing a new TV is likely to be familiar with basic TV operations from having owned previous TVs. If the improvement from the previous product form is significant, early adopters may be interested, and their presence may reduce the returns rate overall during this phase. However, in changing from one form of a product to the next, the major changes may mean that consumers may be confused, because the new product does not operate in the same way as the previous one, and new features may not operate as intuitively as the previous ones. Returning to the VCR example, as new generations of VCRs were introduced, many features were added (Consumer Reports, 1977, 1978, 1982, 1983). The new features resulted in more and more tiny buttons and switches on the face of the units. Although the companies may have felt that consumers wanted these features, many consumers were confused by them (Allan, 1992), and many comedians have commented on the large percentage of VCR clocks that flashed ``12:00'' (the default setting), because the users could not figure out how to set the time properly (e.g. Barry, 1991). The San Francisco Chronicle cited a survey that found that the rate of VCRs flashing ``12:00'' was as high as 17 per cent (Garchik, 1995). If the product has previously established a strong market presence, finding brokers willing to buy the product is likely to be easy. The brokers buying the current product will be the most likely buyers for the new model, but contacting brokers before returned product begins arriving may help the

manufacturer or the retailer find brokers best suited for the product. Current dealers will be familiar with the product line, and quite willing and able to buy the new product. The demand in the secondary market for the new product should be quite strong, as secondary retailers will want to sell the new version of a popular product. Product model introduction Early in the introduction stage, the reverse logistician can begin making plans for dealing with the products which will eventually be returned. As with a new form of an established product, brokers will be familiar with the product, and be able to estimate the demand in the secondary market for it. During the introduction stage, the reverse logistician must also begin dealing with the flow of returned product. Because a new model is a minor modification of the existing product, production difficulties in adapting to the new model should be minimal. The minor modification also means demand for the new model would be expected to be very similar to demand for the previous model. In the case of a new model of a popular product, sales may be high from the beginning or start small and grow quickly, as customer demand for an established, known product is transferred to the new product. In these cases, the product will skip the introduction phase. Growth phase During the growth phase, the CRC will gain experience in diagnosing what is wrong with each item and learn how to best process these returns, and which brokers are best suited to handle the product in different conditions. As returns volume increases, the firm will also have to locate additional disposal options for the product. If the vendor has a ``first mover,'' technical or other type of competitive advantage over the other firms in the market, it may place significant restrictions on the disposal of the product, perhaps requiring all product be shipped back to the vendor, or be destroyed. Product class growth During this phase, returns volume will substantially increase. As the customer base grows beyond the early adopters, many new customers will not be as willing to put up with problems with the product, and be more likely to return it, increasing the rate of returns. As sales increase rapidly, returns may increase even more rapidly. During this phase, the production function may still be struggling with scaling production volume up to commercial levels from the much smaller batches in the development phase. As the process is refined, different types of defects may arise and, until they are corrected, these defects would result in increased customer returns. As returns volume increases, the firm will have to locate disposal options for the product. With a new product, brokers will need to be educated about the product, and may be reluctant to buy it, until it has proven its ability to be a

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long-term item. Otherwise, the broker may be concerned that it will buy a large quantity of product, only to be unable to sell it, because the product was a fad which has quickly passed. Product form growth Some difficulties may be encountered in scaling up production on the new product, and the quality feedback function may continue to be important. Product model growth Increasing sales of a new model that is only a minor modification are unlikely to lead to production difficulties. During this phase returns volume will substantially increase, as sales increase, although the rate of returns may be unchanged. However, as more customers are attracted to the product, these new customers may be less knowledgeable about the product, and the rate of non-defective defectives may increase. Maturity phase Once a product reaches the maturity stage, some of the difficulties faced by the reverse logistician in the earlier phases may be reduced, and be replaced by an additional series of pressures. Product class maturity Once products reach the maturity stage, one manufacturer or vendor is unlikely to have significant technological advantages over others. Therefore, companies are less likely to be primarily concerned with protection of technology. However, brand equity concerns may cause manufacturers to still place restrictions on disposal, with security and demarking still being important. Because the basis of competition for mature products is often heavily centered on price (Kotler, 2000, p. 310), a key focus for the reverse logistician in this phase is cost reduction. In order to keep retail prices low, reverse logistics must focus on taking advantage of every possible opportunity for reducing costs or increasing revenues. Any way to process returns more quickly, or to find new brokers to whom to sell, must be taken advantage of, to reduce the cost of the returns. Product form maturity The similarity to previous products means that customers who are familiar with recent products should not find any difficulty operating the new model. However, if the products, once sold, tend to last a long time, the customer buying today's product may not have purchased such a product for a long time, and may well have difficulties in operating the newer one. This, coupled with the fact that ``buyer's regret'' will always be a factor in consumer buying, and the fact that some products will fail, guarantees that customer returns will continue to come in.

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Product model maturity As sales for the model plateau, companies may become more interested in donating their product to non-profit organizations. This will become increasingly attractive, as sales eventually begin to decline and, with that, revenues from sales to brokers. Donating the product may allow the firm to claim a charitable contribution for the retail value of the item, which may result in a tax gain which is worth more to the firm than the broker would have paid for the product. The difficulty with donation goes back to the issue of trust. Many vendors are reluctant to have CRCs donate product, because past experience has shown them that some CRCs will unethically sell the product ``out of the back door'' rather than donating it, as specified. Decline phase During the decline phase, the emphasis on keeping costs as low as possible continues, regardless of whether the decline is of one model, the product form, or the whole class of products. Product class decline When the overall market for a product is shrinking, value retailers will be aware of this, and may be less interested in selling the product, which means that brokers will pay less for it. It is possible that value retailers may believe that demand for low-priced discontinued products will continue to be strong, despite the declining sales in the ``A'' channel, reducing the downward pressure on prices. However, this is unlikely. Once a product has been abandoned by the market, few consumers are likely to remain interested in it. The exception to this is that, as the sales of a product decline, international shipments may remain strong. For some products, foreign markets may represent an important reincarnation or second life. If the product is a fashion good, and tastes have not changed as rapidly in the foreign market, or if the product is ``high tech'', and the foreign consumer markets are not as technologically advanced, demand for the product may continue to be strong, despite the decline in domestic sales. Product form decline The pace of technological change in an industry will affect secondary market demand. In industries with fast-changing technologies, many customers will be very aware of which features the latest products have, and look for them. In the case of computers, processor type and speed, and the amount of memory and hard drive space would be factors of which customers would be very aware. Older products with lesser features will sell at a greater discount because of this customer awareness. In industries where the pace of technological change has slowed, customers will not be as aware of changes from one generation to the next. Because VCRs are such a mature product, even the changes from one form to the next may not be seen as significant by consumers. Consequently, older products will not sell at as great a discount, and brokers will pay more.

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If sales of one form of a product are declining, it may be that the product is less attractive to consumers because a newer form has been introduced. In this case, some consumers may attempt to return the older, declining form and exchange it for the newer product, even though the period of time for legitimately returning the product may have ended. If these consumers are allowed to succeed with this ``returns abuse,'' the returns volume may increase. Rogers and Tibben-Lembke (1999a, p. 40) describe an example of a video game console manufacturer working with retailers to prevent this. Product model decline In forward distribution, during this phase, the company is trying to determine how long it can continue to sell the product profitably before it needs to terminate it. In reverse logistics, the company does not directly decide when to stop accepting returns. Rather, the last date for allowing returns of a product will depend on the company's returns policy and the date of the last sale of the product. If, for example, customers can only return product for 90 days, then returns may come to the retailer as long as 90 days after the last sale, and then arrive at the CRC after some lag. As sales of the product fall, the prices for the product on the secondary market also are likely to fall. However, if the model sales are declining because a newer, similar model has been introduced, secondary market firms will be very interested in purchasing the product. Because this product is similar to its newer replacements, value retailers will be eager to be able to sell a model which is not very different from the newest models. As with the product class, as the sales of a product decline, international demand for the product may continue to remain high. Cancellation phase Product class cancellation When a product class reaches the end of its life, the volume of customer returns will continue to decrease before stopping altogether. (For example, it is likely that very few eight-track tape-players have been returned in recent years.) The cancellation phase of a product brings different challenges and opportunities from the cancellation of a product model. A vendor will want to protect its name for future products but, when the class of products is terminated, vendors may institute fewer disposal restrictions, which may provide additional opportunities for increased revenue. The challenge of terminated product classes is that, once the product is no longer sold as new, the likelihood of finding interested secondary market buyers becomes increasingly small. Any products which can be sold will likely be sold for very low prices, unless international demand continues to be strong. If the company cannot sell the product, it also may not even be able to give it away. The product donations to charity, which are attractive at the end of a product form, may not be welcomed at this stage. Charitable organizations

have developed an aversion to becoming dumping-grounds for obsolete product. Product form cancellation When a product undergoes a significant, generational change from one model to the next, the vendor may change the product styling and adjust the marketing approach. As with the end of a product class, vendors may put in place fewer disposal restrictions, allowing the reverse logistician to take better advantage of any sales opportunities for increased revenue. The challenge is that secondary market demand for the product may be reduced, compared with demand at the end of a model's life cycle, as newer products will feature improvements. Depending on how great the differences are, however, secondary market demand for the product may also continue to remain strong. Future (and perhaps current) sales of the next generation will mean that value-seeking customers may prefer to buy the older product from value retailers rather than pay the full price for the latest product. Product model cancellation When a product reaches the end of its life, the volume of customer returns will continue to decrease before stopping altogether. Even if the product has sold well, at the end of its life, retailers may send any unsold product back to the CRC, to be sent back to the vendor, if the vendor will accept it back. Despite the fact that sales of this model are falling, sales of similar, but newer, models will likely continue to be strong. Therefore, secondary market demand for the product will remain strong. Broker interest in buying up all remaining product at the end of the product's life will be quite high, although vendor restrictions about product placement will remain high. Not all products are fortunate enough to have periods of significant growth and stability. As authors such as Kotler (2000), Dhalla and Yuspeh (1976) and Levitt (1965) have described, many products either fail to have any significant sales, or have short sales lives. If the product has a very short life, the retailers may return large volumes of unsold product to their CRCs to be sent back to the vendor. Whether or not the retailer can send the unsold product back to the vendor will be determined by the contractual agreement under which the retailer purchased the product. However, because major retail chains often have more power than their vendors, if the product has had disappointing sales, the retailer may be able to prevail upon the vendor to accept the product back, or risk losing future sales. Component life cycles As companies continue to outsource more of the assembly and manufacturing of their products, forward supply chains are likely to become increasingly dependent upon the supply of components from outside vendors. For example, the vast majority of Windows-based personal computers are built around

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processors supplied by two vendors. When deciding on a computer, consumers pay close attention to the performance of these and other components. The introduction of new components by suppliers accelerates the demise of computer models previously introduced, as the manufacturer must introduce new models (just as its competitors are doing) that will reduce the sales of the existing models. The manufacturer that delays introducing a new model is likely to lose market share to its competitors. The result is that the life cycles of these products are not, practically speaking, controlled by the manufacturers, but by the suppliers. As sales of a component fall, some electronics distributors sell off remaining inventories for a fraction of their original value to speculators, who hope that (as frequently happens) a new use will arise for the component, or more components will be required for repairs, and that they will be able to sell off the products for many times the original price. If demand for finished products falls, manufacturers may also demand to be able to return the components to the distributors (Serant and Sulllivan, 2001). Manufacturers and vendors at all levels of supply chains are likely to need to pay much more attention to the life cycle of components in the future. When product in the reverse flow is disassembled and components reclaimed, the life cycle of the components it contains is an important factor in the value of the product. For example, consider the components that may go into a personal computer: RAM, hard drive, CPU (model and speed), video card, sound card, modem, SCSI cards, ZIP drives, etc. As Bollen (1999) illustrated, sales of computer memory chips follow very nicely the product life cycle curve given in most marketing texts (e.g. Kotler, 2000, p. 304), and shown in Figure 1. After sales stop for their original use, some products will live on in new uses. Even though a product may be considered obsolete in the personal computer market (such as an Intel 386 processor), it may be powerful enough for use in many devices, and there may continue to be demand for this component, long after it has stopped being sold in new computers. As each component goes through the stages of its life cycle, its value will rise during the introductory stage, as the component becomes accepted, and then decline, probably beginning in the growth or maturity stage, as the component becomes widely accepted, especially if it becomes a commodity. An exception to this would occur when a component in short supply limits the production capacity of a new product, and a component would be very desirable, as has happened in the past with memory chips or with new technologies of laptop display screens. In recent years, the production and sale of laptop computers have been hampered by shortages of high quality screens and memory chips. Demand for each of the products using these components was increasing quickly, and the aggregate demand for the common components was increasing much faster than production capacity could respond. As a result, these components commanded a premium. However, in such a situation, it is highly unlikely that

the product would be disassembled for the components, as the complete product would command a high price on the secondary market. Conclusions and future research In this paper, we have considered the impact of the product life cycle on reverse logistics. As we have shown, a reverse logistician will face many different challenges in each of the life cycle stages of a product, depending on whether the product represents a new class of product, a new form of an existing product class, or only a new model of an existing product form. In this paper, we have made direct suggestions of how logisticians can and ought to consider the PLC in making reverse logistics decisions. To summarize the findings above, generally, moving from phase to phase in the life cycle of one model will be much easier than when the product class as a whole moves from one phase to the next. The exception to this is in disposing of product; when one model is phased out, and the product form continues unchanged, many disposal restrictions may remain in place but, when the class of products is ending, fewer disposal restrictions will remain, as there is less concern about the product's future. It is important to know what stage of life a firm's products occupy, in order to prepare for the special challenges and opportunities that will be encountered, as the product moves into the next phase of life. The implication of this is that reverse logisticians need not only to watch the sales figures of their own products, but also to look at sales figures for the product overall, across manufacturers. This is the only way the larger trends will be spotted. Because these larger trends have such a significant impact on reverse logistics, monitoring them should bring significant benefits. In the future, firms are likely to have more and more products becoming obsolete on a regular basis. Bayus (1998) studied product lifetimes in the personal computer industry and determined that, contrary to popular belief, product lifetimes are not shrinking. The length of time that an individual model is for sale has not changed, but companies offer more new models, more frequently. As products proliferate, companies will be faced with a long schedule of current products expected to become obsolete at various future dates. The findings of this paper should help reverse logisticians plan and focus their activities at each stage of the product's life cycle. Although the product life cycle has been studied at great length, more research is needed in understanding reverse logistics and its connection to the product life cycle. This paper has suggested many ways that reverse logistics strategies and tactics might change over the life of the product. An important area for investigation would be to see how, in practice, reverse logistics activities do change over the life of a product. Which of the differences hypothesized in this paper are correct, and which are not? Are the impacts on RL activities greater from changes in life stage in the product class's curve than in the product model's curve? Are the impacts of the life cycle felt more strongly, if the product's life is shorter?

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Additionally, more information is needed about returns levels in general: at a basic level, there is little published information on product returns levels by product type. This should be remedied: how do returns rates differ across product types? In general, what is the relationship between new product sales and returns rates? What does Figure 3 look like at the class, form and model levels? Are these life cycle curves different for different categories of products (e.g. consumer electronics, clothing, etc.)? More study of the impact of marketing on returns is needed. Marketing promotions obviously can increase sales. It may be true that some promotions increase returns more than others. To what extent is this true and, if true, how can this impact be minimized? Research is needed into how companies should process, store and dispose of returned goods. Much more research is needed in understanding secondary markets, and how companies should best sell unwanted product. In addition to traditional brokers, many firms are now selling this material through online and traditional auctions. More research is needed in determining how companies should best select products for each outlet to maximize returns, while still protecting brand integrity. As companies are quickly learning, reverse logistics plays an important role in a company's competitive strategy, and more study is needed in this still new and growing area.
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