Small Business vs. Unlimited Guarantees

“Is the customer is always right”?

In reality, is the customer always right? No, not really. Many customers have taken advantage of that adage and have started using it to get something for nothing.

This mindset has occurred as corporations  have extended warrantees for longer terms and in some instances for a lifetime. The wording of such warrantees varies as to what constitutes a guarantee-able cause. Some are unconditional.

Why have companies made these promises to repair or replace their goods with such risk? Well, they either believe their products will last that long, they are desperate to compete on something other than price or they are playing the odds that most people will not return their purchases. All of these have associated costs that you pay for upon purchase.

What has gotten customers (a minority that is growing) to this point? Why are customers willing to lie to get “free stuff”? Retail clerks tell stories of products returned way past their guarantee expiration and with elevated tones decry the failure of the products until they have talked to higher ups and gotten what they want. Are their claims legit? Sometimes yes and sometimes no. They just know that if they scream loud enough they’ll get what they want.

With online and telephone (mail order) purchasing, it gets even worse. Without face to face contact on a return, theReturns line elevation of tone, the assertiveness of conversation and the “I won’t take no for an answer” speech can become
belligerent and often does. Lacking eye contact and the emotional connection of a personal conversation, the clerk on the other end of the line seems less human. Getting your way results in a freebie. The caller goes away swinging high fives while the clerk on the other end feels diminished, defeated and demoralized. After all, this is the company he works for, the products he believes in resulting in a desire for combat pay.

Big business created this practice

Companies have that right to offer any extended warrantees they wish. The do need to live up to them. They also need to spell them out completely. If a $10 billion company makes $800 million in profits, they can afford to risk a 7-9% return rate without affecting the bottom line much. They may get added business because of their warranty which will more than make up for the return rate. Returns may be resold at discounted prices if not damaged.

How can I as a small business compete?

Small businesses that resell products can live by their product manufacturers’ warrantees. If they provide an installation of the products, they should warranty the installation as well or declare in the terms that installation is not included. Some manufacturers offer some compensation for re-installation of their products at a pre-negotiated discounted rate if failure occurs. For large failures, say an entire commercial HVAC system, a negotiation with the manufacturer should be executed in order to not put a small business under financial duress.

Are customers ‘entitled’ to warranty freebies?

  • Customers returning products claiming failure, defective performance or damaged items are entitled to a replacement or repair per the warranty terms. If cash refunds are available, they should be spelled out in the terms. Many products are replacement or repair only.
  • Returns PolicyCustomer honesty is important. If the customer is lying about the performance of the product, they damaged the product themselves or misrepresented how they received the product, the conversations become ugly. Situations such as these need to be protected under the warranty terms and conditions.
  • Don’t offer cash back unless there is proof of purchase/receipt and the time elapsed is limited.  Most people don’t read warrantees until they need to use them, so make sure you’ve covered your company.
  • Do the math. What exactly is it costing to accept, say 8%, of sold products back? In your calculations, figure the labor, postage/trucking etc. as well. What handling will be needed afterwards to re-sell, re-condition, liquidate or dispose of the item? Whatever the average cost is, include it in the sale of the product after deducting the re-sale. If the cost is high, manage your warranty terms carefully.
  • In the case of service-only businesses, call-backs are costly. Sending a technician, installer, service person back to a customer has hidden costs. Not only is the employee time lost, the transportation costs (mileage, time), that tech’s billable time is lost, parts replacements and the lost confidence in your business’ ability to do the job right the first time is now questioned. Remember that customers talk and one bad experience gets shared many times over.

Returned sales cost small businesses thousands of dollars each year. If they aren’t accounted for ahead of time, they come off the bottom line. It is possible to protect yourself by planning ahead. Do the math and protect your profits.

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