"Why Offer a Guarantee?"
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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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.