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Vol. 15, No. 10, October 1997 |
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 Printer Friendly Version |
| WARRANTIES A MATTER OF DISPLAYING GOOD FAITH |
Interview for “Counterman”
For today’s Automotive Parts Specialist
From the Dual Market Strategies Series
by Vicky Poulsen
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Product warranties can become a double-edged sword for many jobbers. Beside taking time away from your selling efforts, warranties have become a commodity that consumers not only expect but demand, as well.
“Manufacturers are offering more and more product warranties,” says Stephen Alexander, president/owner of Automotive In-Store Marketing, Inc. “This is a reflection of the fact that consumers are demanding warranties and are becoming more selective on whose products they buy.
“Consumers are really hardening on this matter,” he adds. “They no longer expect one store to offer the isolated product with a great warranty – they expect it from everybody.”
With any buying decision, there’s a certain risk involved.
But if a product carries a warranty, marketing experts say that consumers are more apt to purchase that product.
“Most people do not like to make risky choices, and they will do many things to reduce risk,” says Richard A. Spreng, Ph.D., marketing professor at Michigan State University in East Lansing, MI.
“For example, while generic aspirin and branded aspirin (like Bayer®) are chemically the same, many consumers buy the branded product to avoid the risk of buying a medicine that could harm them.”
Dr. Spreng says warranties are similar because they help reduce the risk in buying a risky product.
“So warranties are more likely to affect the purchase when the decision is risky (e.g. high financial cost, high social visibility, long-term commitment),” says Dr. Spreng.
Besides being a powerful sales tool, Alexander says product warranties are another way for manufacturers to say they’re confident about their product, and are delivering on their promises of product quality, serviceability and longevity.
“The other reason is to meet a competitive strategy whereby a competitor is offering a warranty on a similar product,” says Alexander. “So there are dual strategies to meet the ultimate goal – to engender confidence in the consumer, whether it’s the professional installer or DIYer.”
Dr. Spreng says product warranties may also bolster a consumer’s image of a lesser-known firm.”
“Many consumers will believe that a well-known firm will take care of problems, regardless of whether there is an explicit warranty (i.e. the brand name reduces the risk),” he adds. “A firm that is not familiar may need to use a credible warranty to signal to customers that they can trust the product.”
Stand By Your Product. A warranty is a promise about a product that can be made by either a manufacturer or seller.
“Satisfaction guaranteed,” is a broad warranty that is often offered. Other warranties can be defined as either “implied” or “expressed.”
The implied warranty of merchantability guarantees that goods are reasonably fit for their ordinary purpose. The express warranty is an assertion or promise concerning the goods or services.
When a manufacturer offers a customer a 90-day (or one-year or three-year) guarantee on the parts and labor, that is an expressed warranty.
Though many manufacturers offer such warranties, they are under no legal obligations to do so.
A confusing aspect of warranties is that both the manufacturer and the seller can make a warranty.
By and large, most product warranties are those sanctioned by the manufacturer.
However, Alexander says the consumer’s perception is that the store is actually offering the warranty.
“An interesting trend is the decided shift in which entity the consumer now considers as the most important first and last entity they’ll go to for fulfillment of that warranty’s promises, and they now more that ever believe it’s the jobber or retailer,” explains Alexander.
“For example, if they went to Joe’s Auto Parts and bought the product there and if it doesn’t work they have only one level, one interest and that’s to go back to Joe’s,” he adds. “They don’t want to be hassled or troubled.”
The Cost Of Doing Business. One of the pitfalls of product warranties is that there’s always a price to be paid by both the manufacturer and the consumer.
“You’re not getting something for nothing,” says Alexander. “A warranty translates into cost.”
“A certain percentage of products will fail, and there’s the cost of taking them back, processing the return and delivering the replacement products to the purchaser,” he adds.
There are also additional costs if there seems to be an excessive amount of defects affecting a particular product line.
“If your product has a much higher failure rate that your competitor’s, your competitor will be getting a greater share of your market which will lead to some serious problems with you as a manufacturer,” says Alexander. “From the store’s point of you, if you’re selling a product that fails a lot, you’re wasting your time and your customers’ time,” he adds. “It cheapens the image of your store and lowers the value statement that consumers hold that is so important.”
Despite the risks involved, Dr. Spreng says product warranties give manufacturers insight into their products.
“The extra cost is offset by the value of learning about product problems sooner, rather than later,” says Dr. Spreng. “That is, without a warranty, the customer who has a problem will not complain, but will just buy from another seller next time,” he adds. “In contrast, a warranty encourages the customers to complain, and this gives the firm a chance to fix the problem.” Most importantly, the manner in which a counterperson reacts to the return will determine whether he or she will retain that customer’s future business.
“Since in many industries the cost of getting a new customer is very high – relative to the cost of retaining an existing customer (often five to one), spending some resources to retain current customers is justified,” says Dr. Spreng.
“Thus,” Spreng continues, “warranty costs are in some part offset by the ability to identify and retain customers who have a problem.”
The Good, The Bad And The Ugly. As we mentioned earlier, although the manufacturer is offering the warranty, it’s often times the jobber or counterperson that’s handling the return.
No matter who’s at fault – the product manufacturer or the customer’s mishandling of the product – a counterperson needs to be well trained in satisfying that customer.
“If we have a situation where the customer attempts to return the product to the store and the conditions of the warranty were not met and the part was improperly installed, you still need to take the Lands End approach to product warranty returns – it’s guaranteed, period. Yes, there are customers who will take advantage and return something they’ve intentionally damaged but by and large research shows that they are a small percentage,” says Alexander.
Even if you know a customer is lying, Alexander says it’s often better just to replace the part with no hassles.
“That customer might start yelling that your store doesn’t stand behind anything you sell,” explains Alexander. “Well, that customer has now poisoned the minds of maybe 20 other customers – all of whom you spent a lot of money to recruit as customers.”
“That disgruntled customer can undo a lot of goodwill that you bought,” he adds. “Happily accepting a return is a small price to pay for consumer goodwill.”
No matter whose right or wrong, Alexander says oftentimes a counterperson just needs to give the customer the benefit of the doubt.
“Remember that common sense makes good business and good business relationships,” he says. “Sometimes you have to use good ol’ seat of the pants judgement.”
Again, warranties can be a powerful sales tool if handled properly. To avoid a possible return, a counterperson needs to educate himself and the customer about the terms of the warranty.
Alexander offers the following approach to handling warranties:
- make sure the consumer knows that the product comes with a warranty (oftentimes, this will be the one selling feature that will drive a consumer to buy that product over a competitor’s);
- explain that there are certain conditions of the warranty (if it has exceptions based upon methods of installation or the fashion in which it is used);
- if there is a problem with the product later, a counterperson needs to simply smile and express a good attitude;
- graciously take the product back;
- make an instant effort to replace the item as painlessly as possible, leaving the consumer with a good feeling that this is a store that stands behind the promise that a warranty implies.
“If you buy nine things and have a hassle returning one of those items, the consumer suddenly thinks the store is no good,” says Alexander.
Even on products that do not carry a warranty, a jobber still has to be careful how he handles that return.
“Jobbers have to wrestle with the $2 or $3 items that break and oftentimes these items don’t come with a warranty to begin with and that’s where the jobber really goofs up,” says Alexander. “A consumer will automatically think that if you don’t take care of something worth $2, forget about them buying anything for $100 – no matter what the warranty says.” Whether it’s a manufacturer or store warranty, Dr. Spreng says there are guidelines which need to be followed in order to insure the financial success of that particular product line. He offers the following principles for warranties and guarantees:
- They should be based on what is important to the customer. Giving a warranty based on something the customer doesn’t care about for feels that there is no risk involved will not influence purchase behavior. Find out what concerns the customer the most and give a warranty for this. Note that this is not necessarily the same as features that are most important, since an important feature may not be seen as being risky. Rather, what are the attributes that are most worrisome to the customer?.
- They should be very clear and simple. If it starts to look like there are lost of conditions or exceptions, then the guarantee loses credibility.
- They should be easy to invoke. The harder it is to collect, the less likely the person will invoke the warranty. This means the firm loses the ability to learn about where the product is weak so that it can be improved, and loses the opportunity to retain an existing customer.
- They should be appropriate in size. A $10 payment for a faulty ball point pen that cost 89 cents would be overkill, but $10 off the bill for fixing a new car that breaks down would be grossly insufficient. The amount of response must be large enough to make it worthwhile to the customer to invoke it. Several hotel chains, such as Embassy Suites, guarantee your satisfaction or you stay for free. This is substantial enough that people will let them know if they have a problem, so that management can fix it.
All in all warranties are about “good faith” – the faith the consumer has in the product, the manufacturer who produces the product and the store that sells it. Since many consumers are becoming more selective of the products they buy and where they buy from, it behooves today’s jobber to handle product warranties and returns with care.
Stephen J. Alexander is an aftermarket consultant, speaker, and author. To learn more about other in-store merchandising and marketing issues, contact Stephen Alexander, Automotive In-Store Marketing at 239-395-9203 or e-mail him at salexander@autoinstore.com.
COPYRIGHT NOTICE:"Reprinted with permission from Counterman, October, 1997, page 65. Copyright by Babcox Publications. Babcox Publications. retains all rights to this material." To subscribe to Counterman, call 1-330 535-6117, extension 253 or visit www.counterman.com.
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