Customer Loyalty and the Warranty Balancing Act

Brand loyalty: an interesting concept in an age of countless competitors, endless choices, and Internet shopping. Using a broad brush analysis, consumers seem to fall into three camps with respect to their buying habits: tending to sheer impulse, happy in basing their decisions on peer reviews, or showing fierce loyalty to a specific product or brand. How to get to the latter?

Going Beyond the Product

When you have a great product, backing it up with the right warranty is essential. It demonstrates confidence and solidifies customer trust. Several budding car manufacturers in the not-so-distant past used extensive, all-inclusive warranties as their main attractant to gain customers, carve out a niche, and successfully enter an already oversaturated market. Fast forward to today, and they’re leading the pack in revenue gains.

Keeping customers is just as important as (and costs less than) gaining new ones. Solid product quality combined with a respectable warranty can accomplish this. Longer coverage periods, or coverage for more types of failure or usage, communicate first-rate product quality, and can be a significant differentiator in markets swamped with similar products. But how do you determine the terms, length, risk, and other factors?

To ensure that the right plans are crafted, businesses must be able to predict future costs. Two of the greatest challenges that warranty budget planners face are accurately determining the right budget to set aside for warranty obligations and mitigating risk. To this end, policy designers must be able to convert detailed data, past and present, into readily available information that can answer questions like:

  • What is the true cost and effect of products that carry multiple or combined warranties over the entire product’s lifecycle?
  • What cost-limiting strategies can be employed in product repairs, and should the repair or maintenance activity perform a replace or a repair of the failed component?
  • What are the most cost-efficient service guidelines for how much time, what parts, and which labor operations should be carried out for a product service or repair?
  • What is the true cost for free replacement (goodwill) and partial-use warranties, not just from a budget perspective, but also from a customer retention and satisfaction perspective?

Warranty policies need to strike a delicate balance between what is cost-effective and agreeable to the customer. It’s a lot easier to nail it if you can shift from reactive to proactive and predictive. Data analysis is required. Being able to spot trends in the data allows for better decision-making that strikes that balance of building loyalty, goodwill, and top and bottom lines.

For more information, check out the 5-Minute Guide to Warranty Analytics.