Marketing Marketing 2.06 Warranties and Standards in Marketing

What is a warranty?What is a warranty?Promise made by seller to

customer that seller will repair/replace product that does not perform as expected

Applies to goodsClassified 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?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 Classifications based on stated or understood promisesor understood promisesExpress 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 Classifications based on stated or understood promisesor understood promisesEx 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 Classifications based on stated or understood promisesor understood promisesImplied 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 Classifications based on stated or understood promisesor understood promisesExamples:

◦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 Classifications of warranties based on extent of promises based on extent of promises they makethey makeFull 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 Classifications of warranties based on extent of promises based on extent of promises they makethey makeLimited 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?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 servicesEX: 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 1st 30 days you are not satisfied cancel without any early termination fees.

Characteristics of a good Characteristics of a good guaranteeguaranteeUnconditional

◦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 Characteristics of a good guaranteeguarantee

◦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 Reasons companies offer warranties/guaranteeswarranties/guaranteesReassure 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 Reasons companies offer warranties/guaranteeswarranties/guaranteesTo 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 Reasons companies offer warranties/guaranteeswarranties/guaranteesTo 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 Reasons companies offer warranties/guaranteeswarranties/guaranteesPromotional tool

◦Warranties/guarantees featured in ads

◦Helpful in gaining new customersCompetitive 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 Reasons companies offer warranties/guaranteeswarranties/guaranteesImage 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 Customer benefits of warranties and guaranteeswarranties and guaranteesReduced 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 Customer benefits of warranties and guaranteeswarranties and guaranteesService 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 Customer benefits of warranties and guaranteeswarranties and guaranteesLegal 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 Benefits to business of warranties/guaranteeswarranties/guaranteesCustomer 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 Benefits to business of warranties/guaranteeswarranties/guaranteesEstablishment 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 Benefits to business of warranties/guaranteeswarranties/guaranteesFeedback 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 Benefits to business of warranties/guaranteeswarranties/guaranteesIncreased 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 Why are warranties/guarantees regulate or controlled by law?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.

LawsLawsMagnuson-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 Magnuson-Moss Warranty ActAct

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 Magnuson-Moss Warranty ActAct

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