The Impact of Abusers & Bad Actors During the Retail Holiday Period

As the holiday season is quickly approaching, you are gearing up for their biggest sales of the year. However, with the holiday rush also comes the wave of unauthorized resellers, bots, and serial abusers, all looking to exploit this busy period. These bad actors are taking advantage of early discounts and generous return policies to create arbitrage opportunities by purchasing items to resell on 3rd Party Marketplaces, costing retailers and brands ~3-5% of total profits during the holiday season.

Working with many retailers and brands, we decided to break down the impact these abusers have on a company’s profitability. To start, I am outlining the customer friendly policies exploited by bad actors:

1. Coupon Codes & First-time Buying Coupons
2. Return Policies
3. Loyalty Programs (i.e., Military, First Responder, VIP Customer)
4. Affiliate & Referrals
5. Exclusive & Highly Demanded Products

Let’s say that Yofi Pants is a retailer that does $100M in annual sales, with ~30% of total sales coming during the holiday period. We will assume some industry standards for Yofi Pants: a 15% average discount rate of total sales, a 15% average return rate, and a net profit of ~$10M annually.

1. Coupon Codes & First-time Buying Coupons:

Yofi Pants, like many retailers, uses coupon codes to attract and retain customers. However, bots, unauthorized resellers, and abusers on the prowl, hijack the customer by purchasing all available inventory and forcing them to pay a markup on 3rd Party Marketplaces.

Impact Analysis: If we consider Yofi Pants's holiday sales ($30M) and apply the industry standard discount rate of 15%, they're essentially offering $4.5M worth of discounts. If even 5% of these discounts are exploited by unauthorized users, that’s a direct loss of $225,000.

2. Return Policies:

Generous return policies are meant to reassure genuine customers. These extended return policies to ensure gifts and items can be returned create havoc for the operation teams, which are flooded by returns. Many of these returns come from resellers that purchase the profit on discount with the intent to resell but return unsold items to the brand.

Impact Analysis: Using the 15% average return rate on Yofi Pants’ $30M holiday sales, we get a total return value of $4.5M with a recapture rate of 50% (i.e. percentage of returned items resold). If 15% of these returns are from abusers, the retailer incurs a loss of $337,500 in returned unsold products.

Furthermore, let’s say that the average order value is $150, and if we return $4.5M worth of revenue, equating to 30,000 items. Yofi Pants offers free returns during the holiday period, which costs the brand ~$25 an item once you consider all the reverse logistics (i.e., reshipping costs, handling, and restocking). If 15% of these returns stemmed from bad actors, it would cost the brand an additional $112,500 from returns from bad actors.

We typically see that ~1% of customers, which we deem bad actors, account for ~20% of total returns.

3. Loyalty Programs:

These programs are designed to reward genuine, loyal customers. When bad actors create multiple fake accounts or abuse military, first responder, and VIP discounts, they cause the true loyal customers and the retailer to suffer. It is seemingly a good incentive, until retailers realize that individuals redeeming these benefits are exploiting loopholes to profitably resell items to hijack potential customers and undercut the brand control.

Impact Analysis: If Yofi Pants offers a 10% loyalty discount and even 5% of these are exploited, given the holiday sales, the loss is around $150,000.

4. Affiliate & Referrals:

Bad actors can create fake referrals or exploit affiliate programs to gain unauthorized discounts or commissions.

Impact Analysis: Assuming Yofi Pants has an affiliate program where referrers get 5% of the purchase value, and 5% are abuse, that’s a $75,000 loss.

5. Exclusive & Highly Demanded Products:

Resellers often target exclusive or in-demand products, buying them in bulk and then selling them at higher prices on third-party platforms. This practice not only harms the retailer’s sales but also impacts their reputation.

Impact Analysis: Let’s say that 5% of Yofi Pants's holiday sales are comprised of such products, amounting to $1.5M. If bad actors purchase even 10% of these, Yofi Pants will have a negative customer experience and potentially additional losses from opportunity costs.

In Summary:

By adding up all the estimated losses, Yofi Pants will lose $900K during the holiday season due to the nefarious actions of bad actors, not including the opportunity costs related to exclusive items.

• $225,000 (Coupon Codes); Revenue & Profits
• $337,500 (Returned unsold products); Revenue & Profits
• $112,500 (Return costs); Profits
• $150,000 (Loyalty Programs): Revenue & Profits
• $75,000 (Affiliate & Referrals): Revenue & Profits

This impact significantly costs Yofi Pants ~7.8% of revenue (787.5K out of 10M) and 30% (900K out of 3M) of total profits!

Retailer's Countermeasures:

As we approach the festive holiday season, retailers face a dual challenge—celebrating the spirit of giving and sharing with their genuine customers while ensuring they don't unintentionally 'gift' their profits to malicious actors. This is where Yofi steps in to help brands master this balance.

Yofi: Ensuring Genuine Customer Experiences While Safeguarding ProfitsAt Yofi, we recognize the genuine intention behind customer-friendly policies and proactively flag and thwart attempts by those seeking to exploit them:

• Preventing Bots
• Spotting Coupon Abusers & Repeat First-Time Coupon Users
• Stopping Serial Returns with our Dynamic Conditional Return Tags
• Protecting Loopholes within Loyalty Programs

Our approach has notably decreased return rates by 11% and cut promotional abuses by 22% for our partners, translating to millions in increased profits and enhanced operational efficiency.

As the holidays approach, and potential threats loom larger, with Yofi's robust protective measures, businesses can navigate confidently. We invite brands to try our free pilot and witness Yofi's transformative impact, ensuring a smooth and secure festive season.

‍

‍