Marketing 2.06 Warranties and Standards in Marketing

What is a warranty? Promise made by seller to customer that seller will repair/replace product that does not perform as expected Applies to goods Classified on basis of whether or not promises are stated or simply understood Grouped on basis of extent of promises it makes

What is a warranty? EX: Apple provides iPod purchasers with a warranty stating that iPods will be repaired or replaced free of charge if they stop working within a year’s time. Why do they do this? ◦ Apple expects its iPods to function as they are intended to do. ◦ If not, the seller will take the responsibility of fixing or replacing it.

Classifications based on stated or understood promises Express warranties ◦ Promises expressed in a specific statement concerning quality of product ◦ May be written statements given to customers ◦ May be oral promises given by salesperson ◦ Must be fulfilled to customer regardless if written or oral

Classifications based on stated or understood promises Ex of written: Customer buys iPad and receives a printed warranty stating actions that will be taken if it doesn’t work properly Ex of oral: Sporting-goods salesperson might say – Pitching machine has one-year warranty. If doesn’t work properly during that year bring back with receipt and we will fix or replace it free of charge.

Classifications based on stated or understood promises Implied warranty ◦ Defined as unwritten, unstated warranty understood by customer & seller that product will perform as expected ◦ Fact that product is available implies product will do whatever label says it will do ◦ Salesperson recommends item to do a particular job, the customer would expect product to do that job.

Classifications based on stated or understood promises Examples: ◦ Customer buys microwave oven – expects it will heat to proper temperature ◦ If not – customer will expect it to be repaired or replaced with or without written warranty ◦ Salesperson recommends heavy duty washing machine for large family – customer expects to wash many heavy loads

Classifications of warranties based on extent of promises they make Full warranty ◦ Warranties that cover entire product ◦ Provide that:  If product doesn’t work properly, is defective or doesn’t live up to warranty – it must be made good within a reasonable time  Company providing warranty may not put time limits on implied warranties the product may have  If problem not corrected in reasonable time – customer doesn’t have to wait longer but may choose refund or replacement  Customer need only notify warrantor to obtain repairs

Classifications of warranties based on extent of promises they make Limited warranties ◦ Do not contain provisions of full warranties ◦ May cover certain repairs, specific parts or particular time period ◦ EX: limited warranty might cover only motor of an electric appliance or other repairs only for first year.

What is a guarantee? Promise made by seller to customer that seller will refund purchase price if product doesn’t perform as expected Sometimes referred as money-back guarantees Given for both goods and services EX: good- Kroger offers store brand products – guarantees you will like it or get national brand free. Service- Time Warner Cable offers risk-free guarantee on mobile Internet devices – Within 1 st 30 days you are not satisfied cancel without any early termination fees.

Characteristics of a good guarantee Unconditional ◦ No conditions that customer must meet for guarantee to be in effect ◦ EX: LL Bean unconditional guarantee promises 100% satisfaction or items can be returned at any time for refund or credit

Characteristics of a good guarantee ◦ Understandable  Language should be clear and promises specific  Customer should have no difficulty understanding what guaranteed promises ◦ Easy for customer to implement/collect  Customer shouldn’t have to fill out many forms, see several different people or travel to different locations to obtain satisfaction  Customer’s money should be refunded on spot whenever possible

Reasons companies offer warranties/guarantees Reassure prospective customers ◦ Companies see to reduce customer anxiety by giving customer warranty/guarantee with product ◦ Want customer to know problems with product will be corrected or price will be refunded ◦ EX: Sears offers lifetime guarantee on Craftsman tools – purchasers can get refund on unsatisfactory tool at any time

Reasons companies offer warranties/guarantees To protect producer and seller ◦ Producers and sellers protected by well-written warranties and guarantees – responsibilities to customer clearly defined ◦ Customer informed at time of purchase way to handle problems ◦ Helps prevent purchasers from making unreasonable claims against producers/sellers ◦ EX: New car warranty – limit of miles or time for problems to be corrected. Point reached customer cannot make any further claims

Reasons companies offer warranties/guarantees To gain repeat customers ◦ Warranties/guarantees foster customer loyalty ◦ When company handles problem satisfactorily customer feels good about business and likely to buy from it again To increase sales ◦ Benefits offered by warranties/guarantees can be pointed out as additional product benefits ◦ Benefits may be deciding factor in purchase

Reasons companies offer warranties/guarantees Promotional tool ◦ Warranties/guarantees featured in ads ◦ Helpful in gaining new customers Competitive tool ◦ Important tools for companies competing with foreign producers who cannot offer warranties or guarantees and for companies that don’t wish to lower prices

Reasons companies offer warranties/guarantees Image builder ◦ Can help build image ◦ Expresses confidence in those products and company itself ◦ Customers feel company will stand behind its product – must reliable

Customer benefits of warranties and guarantees Reduced anxiety about purchases ◦ Customers less likely to feel anxious about spending their money ◦ Know problems connected with purchased items will be taken care of Free repairs ◦ Usually time limit on repairs ◦ Customers know problem occurs during time period of warranty will be corrected – no cost to them

Customer benefits of warranties and guarantees Service information ◦ Include list of locations where customer can obtain repair or replacements ◦ Often called factory approved service centers ◦ Locations might not be known without this list ◦ Procedures to obtain repairs/replacements included as well

Customer benefits of warranties and guarantees Legal recourse ◦ Many customers are aware they are entitled to file lawsuit against company if doesn’t fulfill its obligations ◦ Courts will uphold legitimate claim & see that customer obtains satisfaction

Benefits to business of warranties/guarantees Customer oriented focus for business ◦ Offering meaningful warranties/guarantees a company must study target market and understand customers needs. ◦ Information will benefit company in all areas of customer relations

Benefits to business of warranties/guarantees Establishment of clear standards for the business ◦ To make specific promises, company must have clear goals ◦ Setting standards for customer service/company image can lead to better organization of entire business

Benefits to business of warranties/guarantees Feedback from customers ◦ Customers calling about unsatisfactory products provides company with valuable product information ◦ With feedback, company can make corrections and improvements

Benefits to business of warranties/guarantees Increased profits ◦ Companies that build a reputation for carrying out terms of warranties/guarantees generally have higher sales. ◦ More repeat customers ◦ Greater profits

Why are warranties/guarantees regulate or controlled by law? Warranties/guarantees can cause problems for producers ◦ Product may develop problem that isn’t covered by a warranty, but customer still expects problem to be fixed ◦ Customers sometimes misuse product or fail to follow operating instructions ◦ Company refuses to handle problem under these conditions, customer may feel cheated There have been times when companies “guaranteed” their products without living up to the terms of the warranty/guarantee and the customer was really cheated.

Laws Magnuson-Moss Warranty Act ◦ Passed by federal government in 1975 ◦ Provides guidelines for businesses offering warranties/guarantees with their products ◦ Protects consumers who buy products that have warranties/guarantees ◦ Intent is to make warranties stronger/easier for consumers to understand ◦ Covers all consumer products – requires businesses to provide product information to consumers even before they make purchase

Magnuson-Moss Warranty Act Other provisions ◦ Federal Trade Commission has authority to regulate warranties on any products that sell for more than $15. ◦ Warranties must be clearly expressed, easy to understand, and give the name of the warrantor ◦ Warranties must state what company responsible will do if product is defective, how long the warranty covers, whether warranty covers whole product. ◦ Warranties must define buyer’s responsibilities, procedures for using warranty and any expenses involved ◦ Copies of written warranties must be available where warrantied products are sold so consumers can read before purchasing products

Magnuson-Moss Warranty Act Today’s courts recognize both express and implied warranties ◦ Salesperson recommends specific product for a particular purpose – business is held responsible for recommendation ◦ In some cases, consumer may purchase item from retailer but manufacturer is responsible if doesn’t perform properly or causes harm ◦ Companies sometimes motivated to live up to terms by fear of product-liability lawsuits ◦ Consumers may sue company if feel company’s product causes accident, illness or death because product was dangerous, not properly labeled or defective