A successful warranty program advances a manufacturer’s fundamental goals of achieving and sustaining profitable sales.
As an outside attorney who has counseled companies on factory and extended warranty programs and defended warranty litigation for over two decades, it’s clear to me that successful programs share two critical traits:
- The smartest programs have freed themselves from traditional thinking that warranty is nothing more than a profit-draining cost center.
- The most successful programs have an unwavering commitment to customer satisfaction through top-level customer service.
Studies conducted over the last 20 years show that consumer and commercial buyers highly value warranties, which underscores the benefits of a customer-first warranty philosophy. A robust, customer satisfaction-based warranty program enhances company reputation and fosters strong customer relationships that build brands and drive sales. For example, in 1999, Hyundai Motors extended its powertrain warranty and saw its market share increase from 1.1 percent to 4 percent. Conversely, Volkswagen reduced its powertrain warranty in 2002 and experienced a 30 percent decline in sales over the subsequent three years.
Research has identified several reasons why a customer-first approach to warranty produces positive results.
First, buyers primarily see a warranty as a form of protection that shows a company stands behind its product and will provide a simple, no- or low-cost remedy should the product fail to perform as advertised. Consumers have come to view warranty repair service as part of the value of the purchased product and are willing to pay a premium for a higher level of protection.
Second, buyers view a warranty offering as a signal of quality and use it to distinguish between a “high quality” company and a “low quality” company. In the eyes of today’s consumer, a better warranty indicates a better product and a better manufacturer. Because of this, buyers are more apt to base a purchase decision on a company’s warranty offering.
Third, the studies cited further suggest that a customer-centered warranty program validates the buyer’s purchase decision. By making warranty documents easy to understand, training employees to effectively deal with dissatisfied or disgruntled customers, and offering creative solutions to resolve customer complaints, companies instill in their customers the feeling that they made right product choice.
Warranty has taken on a new role. It is no longer just a “necessary evil” and cost-center. Today, warranty is a sales and marketing tool that can distinguish a company from its competitors, build that company’s brand and drive sales.
As the Hyundai experience shows, companies that have shifted their warranty focus from cost control to customer satisfaction have seen increased sales and higher profits. Making the shift requires collaboration between several groups within an organization, including sales and marketing, legal, finance, and public relations and communications. The challenge is to devise and implement a program that is not only consumer-centered, but competitive, cost-effective, and consistent with a company’s goals and culture.
Later posts will address other factors critical to a successful warranty program, including, investing in customer satisfaction, building and maintaining a strong relationship with retailer dealer service facilities, assembling a well-trained and highly professional staff, and identifying and maximizing protections and benefits available under the governing law.