"Why Offer a Guarantee?"

Guaranteed or Not...

You'll get different opinions when you ask a fellow business person about the notion of offering a guarantee for your product or service. Some will consider it a liability (this is likely to be the view of your accountant!). Others might consider offering a guarantee as a necessary evil - they don't want to do it, but feel they have to do it. But ask any good product marketer and they'll tell you it's an essential asset in their arsenal of marketing tools! So let's look at guarantees for a moment...

What is a Guarantee?
According to the American Heritage Dictionary (4th Edition), a guarantee is "a promise or an assurance, especially one given in writing, that attests to the quality or durability of a product or service." Simple enough, but the key words are "attests to the quality or durability" -- it's a statement of quality. In fact, a guarantee is a marketing statement. It's an advertisement that says: "our products are good... so good that we publicly make a promise to you about what we'll do if you find they're not good."

How Strong a Guarantee Should You Have?
While all guarantees offer assurance, they are not all equal. Shown below are two typical, but very different, guarantees:

Guarantee #1: The Limited Guarantee
"This product is guaranteed against defects in material and workmanship. If, within 90 days, you find any widget to have a defective component, return it to the factory for a free replacement. "

Guarantee #2: The Sweeping Guarantee
"If at any time, for any reason, you are not completely satisfied with our product, you may return the product to our factory for a replacement or complete refund."

Both of the above statements are guarantees; both suggest that the company stands behind its products. But they are also quite different and evoke a completely different perspective about the company making the guarantee. Which would you rather do business with? The choice of using a limited guarantee or a sweeping guarantee depends a lot on the product or service you provide. For products or services used in highly variable environments, or made of hard-to-predict materials, you may want to use a limited guarantee. For example, for many years, squash racquets were not guaranteed at all. They were made of wood and were used by players with unpredictable temperaments. However, years later, when graphite racquets were introduced, manufacturers began to differentiate themselves by offering a limited guarantee. The new materials made it possible to be more aggressive with their guarantees.

A Guarantee Combats Sales Objections
Your statement of guarantee is a part of your product offering. It tells the consumer that you are a trustworthy company and that you stand behind your products. If your company or product is not well known, your guarantee can make the different between a consumer playing safe, or taking a chance on a new supplier. With a sweeping guarantee, for example, how can the consumer make a mistake! This is one reason why mail-order catalogs often use sweeping guarantees like the original Sears Roebuck "Satisfaction Guaranteed."

A Guarantee Increases The Lifetime Value of a Customer.
In the catalog industry, where the "lifetime value" of a customer is one of the most important dynamics of a customer relationship, it's well understood how a guarantee affects this. In test after test, catalog merchants have found that the customer that returns a product against the merchant's guarantee will have a much larger lifetime value than the customer that never has cause to return a product. Why is that? Because the credibility and trust of the merchant have been proven making it easier for the consumer to buy again.

A Guarantee Is a Statement of Quality
Something that many business people fail to recognize is that a guarantee statement is also a statement about the quality of their products -- it tells the consumer what quality is worth to your company. Guarantee #1 tells the consumer that it's somewhat important but that there are limitations. You have faith in your products ...up to a point. Guarantee #2, however, tells the consumer that you are completely behind the product -- no questions.

A Guarantee Offers Legal Protection
In the software field, where it's common to disclaim any liability for your products whatsoever, there have been a number of court cases where the judge has ruled that such disclaimers are "unconscionable"-- that disclaiming everything is simply unrealistic and unacceptable. In these cases, the court will decide on what an appropriate settlement should be.On the other hand, in court cases involving firms that offer some form of guarantee, the firm's guarantee statement has protected the firm from undue penalties because it afforded the consumer some responsible recourse. A quick consultation with your lawyer about guarantees and "errors and omissions" liabilities help you understand what protection may be available in your industry from a strong guarantee statement.

Things to Think About in Creating Your Guarantee
Start with the assumption that, from a marketing point of view, the sweeping guarantee is the strongest. Why wouldn't you want to make the strongest advertisement for the quality of your products! Work backwards from there. Is your product expendable? If so, some sort of limitation might be appropriate (this is the theory behind "Best Before" dates). What is the true quality of your product? What is the quality expectation set by the pricetag? A $25 coffee maker that leaks after one year is a higher quality product than a $200 coffee maker that leaks after one year! What type and number of complaints do you get now? How do you resolve them? If you already satisfy customer complaints aggressively, why not say so in your guarantee! If your customers have a high repeat value - they come back for more and more -- then examine your guarantee against the full value of your consumer over a period of years. Lastly, examine the guarantees from your suppliers. Will they leave you high and dry if there's a problem?

The Dark Side of Your Guarantee
Now for the bad news. If you make a guarantee, you have to make good on it. Your accountants may not like this but if the entire company understands your guarantee and the consequences of poor quality, you'll find that the quality of your products or services will increase to meet the guarantee criteria. That being the case, you'll find that the type of guarantee you make about your services or products is also a statement about what degree of quality problems you will accept within your company. No guarantee? You'll tolerate quality problems. Strong guarantee? You'll tolerate none.

Guaranteed to Make a Difference
So should you offer a guarantee or not? As long as your committed to providing a quality product or service, the reasons to do so far outweigh the reasons not to do so. The biggest reason? Your customers and prospects will respect and appreciate your interest in satisfying them.

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Click KLynn Business Consultants to link to the KLynn consulting site.

"I Never Open Junk Mail!"

Invariably, this is the first thing I hear when I suggest a direct marketing campaign to one of our clients. But it's not quite the truth. They never open junk mail... except when they do.

To be sure, most people do not open their junk mail. For a good campaign, perhaps only 10%-20% will open it and only 1%-2% will act on it. That doesn't seem like a lot, does it? But then, why do we continue to get junk mail? Why does it seem, in fact, like we get more junk mail every year?

The short answer is: because it works. Here's how...

Let's take the example of mailing a promotion for a $250 item to 20,000 people. Here's the math based on a response rate of 1.25%:

In this example, we spend $14,500 in preparing and sending the mail piece. With a response rate of 1.25%, we get 250 orders giving us sales of $62,500. Assuming the product we sell is purchased from someone else, we may get to keep 40% of the sales with the remainder going to pay for the merchandise. That leaves us $10,500 after the costs of the mailing.

What this example illustrates is that -- even though 98.75% of the respondents do not open/act on their junk mail -- the campaign will earn $10,500! Imagine if the response rate were 2% instead of 1.25% ...then it would net more than $25,000!

With those kind of numbers, instead of asking why we get so much junk mail, we might want to ponder why we get so little!

Click here to link to the KLynn consulting site.

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Click KLynn Business Consultants to link to the KLynn consulting site.

The 9 All-Too-Common Characteristics of Technology-driven Companies (...or why the dot-coms crashed!)

The Burden of a High Potential
Technology companies have a reputation of being "high-flyers" -- that is, they have high potential for rapid and significant growth. Companies like Microsoft, Cisco, Dell, and Google underline that perception. But for every technology company that flies high, there are hundreds of others that can't make it past a sales mark of a few million dollars or can't cross the line to become profitable. Often it's these companies that come to KLynn looking for a way to bust out of their doldrums and realize the high-flyer potential they have. These companies all share certain characteristics.

The Good Idea
The most common characteristic is that they tend to have a really good idea behind their business. Yes. Their problems are not because they have a bad idea, a bad product concept or a bad service concept. Just the opposite. They have a good idea and they know it in their bones.

Solutions Looking for Problems
But too often, what they also have is a solution looking for a problem. They know they have a good idea, true, but they do not know who has the problem. Because the founders of these companies are often technologists themselves, they have the view that a really good idea should be sufficient to draw customers out of the woodwork. If we build it, they will come. (see 'Magical Thinking' below.)

Ambiguous Markets
That type of view complicates their entire business model. If a company hasn't found the problem their solution is for, then they haven't found a market. Without a market, finding customers is difficult (at best).

What often happens is that the company is glib about where the problem is that they have a solution for. "Our market is the Fortune 500" is a phrase I often hear. That's just not good enough. It doesn't mean anything in terms of how the company can get to the market.

In contrast to that glibness, let's take a company like NEBS (NYSE: NEBS www.nebs.com). NEBS' market is small businesses. They have the name and address of every one of the small businesses in their marketplace. As a catalog sales company, they know exactly who they're selling to. They have to. Without a name and address they cannot mail their prospective customer a catalog. So with NEBS, there's no glib description of the market; knowing who their prospects are is a core value for the company.

Poor Understanding of Customers
A poor understanding of the marketplace can only result in a poor understanding of one's customers. Too few technology companies really understand their buyers. Why did they buy? Who made the decision? What other products or services did they consider? What else do they buy? How often do they buy? These are just a few of the questions that most market-driven companies can answer, and most technology-driven companies can't.

Looking at NEBS again as an example of someone who does know their customer, they can answer these questions and many more. They also require their management team, executive and middle-level, to each visit a number of their customers every quarter. Customer knowledge is a vital component to their business and they have incorporated that into their very culture.

Insufficient Measurement of Results
Outside of the lab or the engineering development organizations, technology-driven companies tend to be equally glib about the measurement of results. It's a strange contradiction of disciplines. They will know the number of lines of code that each software component has, but they will not know how well the last advertisement performed. They will know the Mean-Time-Between-Failures (MTBF) of every hardware component they use but they couldn't tell you the average value of an order or the maintenance plan renewal rate for their customers.

Poorly Articulated Goals
This becomes clear in examining the goal statements of technology driven companies. Too often, technology-driven companies have goals like: "Be the leader in... " or "Dominate our markets!". But these are not goals to manage to. Good goals are goals where progress can be measured and good goal articulation includes the measurement criteria; e.g. "Be the leader in network routers as measured by... " or "Dominate the screensaver market as measured by...".

Inability or Unwillingness to Set “Strategy”
To make matters worse, technology companies often have difficulty setting strategy. Generally, this is because the company doesn't know who their market is and has too many good ideas for it. They're all good ideas! Everyone of them deserves to be developed and launched!

Too many ideas, too few markets, and a limited amount of cash make strategy essential. But what is "strategy"? Many managers think strategy is about cleverness. It's not. Strategy is simply prioritizing. Every aspect of a firm's business plan needs prioritizing. The priority of markets is the market strategy. The priority of products and product development is the product strategy. The priority of channels is the channel strategy and the priority of sales initiatives is the selling strategy. Strategy, a.k.a. priority, defines how we may invest in the many opportunities available to us. The term "counter-strategic" then means: we are investing in something counter to our priority.

What's often observed in technology companies, if one looks hard enough, is that there are strategies being executed counter to the priority or there are simply no priorities. Obviously, this is not OK.

Difficulty in Scaling
Well, really... if a company has ambiguous markets, if it doesn't understand its customers, if it doesn't measure results, has poorly articulated goals and won't prioritize, difficulty in scaling is often the least of their problems.

“Magical thinking” (or Dangerous Ego)
Sergeant Friday on the old detective series "Dragnet" used to say: "Just the facts, ma'am, just the facts." But there is something about technology that seems to imbue its worshipers with magical powers and causes them to think that they can defy the laws of marketing physics. Two statements that typify magical thinking are as follows:

"There is no competition."

"I know the market."

Most often, both of these statements are wrong. There is no substitute for facts. Gut feel just doesn't cut it.

Marketing IS a Technology.
The big mistake that may technology companies make is not to recognize that marketing IS a technology. As a technology it is the application of a science. (Yes, Virginia, marketing is a science.) As such, it can be measured and tested and predicted with a surprisingly high degree of accuracy.

So... think about it... Now does the dot.com crash make sense to you?

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Click KLynn Business Consultants to link to the KLynn consulting site.

The Rule of List, Offer & Presentation

There are few marketing tenets more important than that of "Lynn's Rule of List, Offer, and Presentation"*. Essentially what this rule governs is the success factors in marketing communications -- where "success" is a measure of how much response there is to an advertisement or promotion. The rule suggests that selecting the right "list" (i.e. your audience) contributes 50% of the success of any given advertisement or promotion, and 40% comes from having the right "offer". The remaining 10% comes from the "presentation" or the creative component of the advertisement or promotion.

Think about it... if the rule holds true, what this suggests is that all the money spent on impressive graphics and clever copywriting contributes only 10% to the success of an advertisement or promotion. Scary.

So let's look at where the 90% comes from. The rule suggests that 50% is attributed to the "List". For a mailing, it's the mailing list, for a print ad, it's the circulation list, for an event, it's the attendees list, and so on. The promotional quality of the list is what's important. In the case of lists, quality is determined by the relevance of the members of the list to the promotion being made. Are they in the target marketplace? Are they decision makers? Is there evidence that they respond to this type of promotion? How long ago? These are all questions important in selecting a list. For example, the notion of advertising in a magazine without understanding the circulation list or exhibiting in an event without understanding the attendees is essentially promoting "blind" and the results are likely to be underwhelming.

The list is a significant component of promotional success, but where many marketers go wrong is failing to make an "offer" to the list. They may create a beautiful and clever print ad, they may place it in a magazine with an appropriate circulation list, but they fail to offer the prospective viewer any reason to act. In effect, an ad without an offer is like me introducing myself to someone I've been dying to meet, and then saying only "Hi, my name is Kurt" and then walking away. What's the point?

An offer is an invitation to act -- a call to action. An offer can be as simple as "Buy GeeWhiz today!" or as complex as "Buy GeeWhiz at 20% off, while supplies last, one to a customer; offer expires September 30, 2006". Some offers work betters than others but any offer works better than none at all.

There is both science and art to making a compelling offer that will evoke a good response from a list of prospects. The science of good offers has been developed through years of empirical testing -- principally through "split-testing" of different offers (sending one offer to group A and another to group B and statistically comparing results). Testing in this way has proven that different offers have different strengths. For example, a sample list of offers is shown below, in order, from strongest to weakest:

• "Sweepstakes" or contests (e.g. "Win $2,500 cash and a trip to Costa Rica...")
• FREE!
• 25% Off!
• No Risk, Money Back Guarantee.
• Limited time or quantity (e.g. "Offer good only until ..." or "Only 100 available!"
• Send for information.
• Have a salesperson call.

The art of good offers is how we package the science. For example, "50% off", "Save $100 each", and "Buy one, get one FREE!" are financially equivalent for a product with a $200 SRP --but each evokes different buying dynamics. Likewise, "Call 800-555-11111 for installation details" is essentially the same as "Call 800-555-1111 for your FREE planning guide".

With offers, it's also a good idea to keep in mind the effect of a strong offer on your entire sales cycle. A strong offer may result in an excellent response rate to your promotion. But the leads that are generated by it may be more difficult to close or have a low closing percentage. For example, a compelling offer in an advertisement for network management tools might be "Ask for our FREE planning guide and we'll send you a check for $25!" Almost certainly you'll be asked for many planning guides... but the close rate on prospects generated in this way will be low. Why? The responder wants the $25, not the guide or product. On the other hand, with an offer of a rebate of $25, the offer associates the incentive with the desired action -- i.e. you get the $25 when you buy. The response rate will be lower, but the quality of the lead will be higher.

Bottom Line

Make sure all your promotional work is vetted against the rule of List, Offer, and Presentation. Check each element to ensure that your promotion is focused on the right audience, includes a compelling (to the audience) offer, and is presented in a way that will make the offer stand out.

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Click KLynn Business Consultants to link to the KLynn consulting site.

*This rule of thumb is actually industry legend in the direct marketing world. I only claim it as my own because so few people actually practice it.