Insurance

Why It's Important To Offer Your Customers a Warranty

Jacob Stein
 on 
April 16, 2019

Companies love to talk about their warranties. There’s good reason for this. Warranties can not only serve a functional purpose - to provide coverage if something goes wrong with a product - but they have also become a marketing tool. We’re going to break down why exactly it’s important for brands to offer a warranty and how to start writing one:

Implied vs. Explicit Warranties

First off it’s necessary to note that when any manufacturer sells anything, the product comes with an implied warranty. This is the unstated but understood agreement that when a customer purchases a product, it will perform as advertised. Yet, there is an opportunity for the manufacturer to take this one step further. The manufacturer can, and should, offer an explicit warranty.

An explicit warranty from the manufacturer outlines what exactly the brand will cover, under what circumstances it will provide reimbursement for repair or replacement, and for how long coverage will last. The explicit warranty must come at no additional cost to the consumer.

Why offer a warranty?

There are two main benefits to offering customers a warranty. First, warranties are a valuable tool for maintaining strong relationships with existing customers because it provides recourse in the event a product fails. The possibility for a discrepancy between the company and the customer is limited in the event something goes wrong if the terms of coverage are explicitly stated in a warranty.

Second, an explicit warranty can be leveraged as a marketing tool to compete with other brands and attract new customers. Warranties work as a marketing tool because of an economic concept called signaling. Signaling occurs when one party conveys to another party some information that is otherwise unobservable. A warranty works as a signal by conveying to the customer information about the quality of a product that is otherwise undetectable just by looking at it. Since it’s inherently not in a brand’s best interest for customers to have to exercise their warranty rights, a comprehensive warranty signals to shoppers that the brand is betting that the product will not fail. In other words, a superior warranty signals a high quality product, thus lowering consumers’ perceived risk in purchasing it. Brands can compete with each other by offering a better warranty.

How to Write a Warranty

So, how does a company write a warranty, and what should it include? A ton of information is included in a warranty, so here are the basics: First the warrantor must decide if they are offering a full or limited warranty. A full warranty generally promises five things:

  • The company will provide warranty service to anyone owning the product during the warranty period.
  • Warranty service will be free of charge.
  • The company will provide either a replacement or a full refund, at the consumer’s choice, if it can’t repair the product.
  • The company will provide warranty service without requiring the consumer to return the warranty registration card.
  • The duration of any implied warranty will not be limited.

If any of these are not included in the explicit warranty, then it is a limited warranty. Next the company must spell out what the warranty covers. For example, the warranty might cover defects in materials or workmanship in the product.

It is equally important to spell out what the warranty does not cover. The warrantor can choose for example to not cover certain parts that are more prone to breaking. The warranty should also clearly note that it does not cover against damage incurred due to misuse of the product. By also writing out what the warranty does not cover, companies can mitigates the risk they take on, however, a shopper may be dissuaded from purchasing the product if the warranty does not cover all types of damage.

In addition, the warranty must indicate the duration of coverage. A longer coverage period will be more appealing to buyers, however that means that the company is exposed to a greater amount of risk. The warranty must also indicate who is covered. A full warranty has no restrictions on who is covered, however a limited warranty may, for example, only cover damages incurred by the original buyer.

The warranty must also explain to the customer how they can get service and how the company will resolve an issue with the product. Typically, the company will have the option to repair, replace, or refund the cost of the product.

Lastly, the company should confirm that it complies with state and federal consumer protection laws. A lawyer can review the warranty and confirm that it complies. Of course, the warranty should also be formatted and presented clearly.

Brands can extract a ton of value from offering a solid warranty. Not only does it serve a functional customer service purpose, but it can also be a strategic marketing tool. A well-written, comprehensive warranty can give a brand a serious edge over its competition.



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