Warranty Wise

Drafting a Warranty, ESP or Maintenance Program Business Plan

• P&L’s
• Cash Flow and Balance Sheet
• Revs and Forecasts
• Ops
• Insurance
• G&A
• S&M
• Summaries and Recaps
• Etc.

All this stuff has to be  looked at.  Most importantly though:

Are you offering a warranty you should if you are looking at an OEM program? Does it give the purchasers confidence to buy your product?

Are you offering a warranty that people want to buy if you are offering an extended warranty program? Is it the right coverage at the right price?

Are you offering a maintenance program that insures the business or consumer you are serving can keep on operating?

Yes, you should not be in the business if it doesn’t pencil out so drafting a business plan and in depth financials are important, but why bother penciling it out if your programs won’t sell…

What is your vision to make your warranty program a benefit and how will you differentiate yourself from your competition?  What will it look like?

Warranty programs can be powerful….This is where you want to start before you can even put a pencil to the paper with financials.

This month, we will be taking a closer look at some great ideas and what financial questions have to be asked to make them work….

Safe and Secure

What makes an extended warranty  or warranty program secure?

Is it the size of the insurance company?

Is it the excess reserves?

Is it regulation of that state?

Is it the systems?

Yes….all the above matterm but what matters most is a complete understanding of, and devotion to, the needs of your customer, and how your company is nothing without that customer….

One customer at a time.

One policy at a time.

Safe and Secure.

The Best Things in Life are Free

Free Smiles

Free Good Attitude

Free exchange during manufacturer warranty

Free shipping

Free In-Home or On-Site Service.

Free—of deductibles, of sales tax, of hassles when customer service is needed

Free to Fly

Free to be Me.

What would it take to Free up your staff to Freely deliver great customer service free of worrying about giving it away for free.

The most powerful word in the marketing dictionary is Free.  How about we use it more often in the warranty business.

Enjoy the videos this morning I pulled down from You Tube….The Best Things in Life are Free!

One by the Beatles, (Money---Just give me Money) and the other by Janet and Luther.

http://www.youtube.com/watch?v=w_pSCCzuU4Y

http://www.youtube.com/watch?v=DaNNdQVQB9k

Customer Experience…When I break down

What do you think of and automatron digitally saying, “please press this if you need this” instead of a live person asking, “how can I help you”?  I for one hate it.  Are they efficiencies and cost savings in setting up a tree of questions that is based upon Frequent needs, maybe.  I say maybe because I can not believe that a company who prefers to give good customer service would utilize this method of steering you instead of having a human.  I will always do business and continue to do business with companies that use real people instead of robotic solutions.

In the warranty business this is especially important because people begin their call with a problem to be solved and paid for the solution in advance….

If you lead a company, ask yourself, “How do customer drop offs pencil out”?

 

Have a listen to these songs as hint to what I am saying and always remember the line, “When I break down…..”  Alan Parsons band really knew how to write them and compose them.

http://www.youtube.com/watch?v=3NnQ8HCYoVQ

and just for grins and giggles and a little syncopation, listen to IRobot

http://www.youtube.com/watch?v=NQi-OSXznrY&feature=fvsr

Ethical Warranty, Profitable Warranty

It seems to be that if a warranty is priced right, a claim should not be an issue.  Simple.

Pricing a warranty on any product is based upon frequency of repair or replacement multiplied by the average cost of repair or replacement.  End of story.  Yes you add in a margin and profit for those administrating it to cover the cost of overhead and margin for those selling it, but this is not hard math.

Why do claims then get turned down, or why do some companies make it difficult to obtain an Return or Repair authorization? 

Other than the obvious “not covered” failures, sometimes it is to save money….

Bad ethics, bad mojo.  Bad idea.

If the price has been calculated incorrectly and the book of business is losing, why do the people that have warranties in place suffer?  Is it all about short term P&L’s?  Why not look at the experience, learn, and adjust pricing moving ahead to offset current losses?  Raise the reserves a little, lower the margins a little and move on……IN other words don’t mess up the customer experience. You do that, you are toast….

All parties involved in the sale must work with each other to keep each other whole.  It's about the consumer.

Ethical Warranty, Profitable Warranty….

You Can’t Turn a Frog into a Prince

I just heard from my son that he is expecting a $1,300 refund on a car warranty because he never used it.  I’ll believe it when I see it.  This company has already came up with ways to “not cover” his air bag light, his air bag replacement, and a few other minor issues on his Chevy Truck.  It just gives our industry a bad name when BS fine print is used to not cover failures.  He says he was told by the F&I guy when he bought his vehicle that the “refund if not used” is a great feature of the extended warranty.  Between fine print and verbal deception, we will continue to tight an uphill battle for respect and trust.

Be square and true to your customers.  It will pay off big in the long run for all of us….

In the interim, enjoy this Peter Gabriel video from You Tube.  “Kiss that Frog” is a catchy tune that will remind you that the best way to go is “reality” and if not, at least you’ll enjoy the song!

http://www.youtube.com/watch?v=w3px06j0tIM

or you can see a live video from his live DVD.

http://www.youtube.com/watch?v=Mn7XejkWo6g&feature=related

Consumer Reports August 11 “Repair or Replace It ?”

Take a look at the CR 8-11. I appreciate the input from the consumers and the writers that put this data together however unscientific and incomplete it is. It is an interesting read.  Great advice on what to hold onto and repair versus what to replace.  The guide to timelines is interesting. 

My concern is they still stick to their old Extended Warranties are not a good financial investment except for laptop computers.  They use the median cost of repair as $150 versus the median price of an extended warranty at $142.  Well math is math.  That is about a 5% difference in favor of buying warranties.

 

They neglect to tie in some data they recite to the value of extended warranties. They point out that 13% of the people complained about parts availability.  22 percent complain about lengthy repairs.  13 % had bad repairs.  14% had excessive cost.  Guess what, with extended service plans, these issues are handled expediently and generally speaking, if an item cannot be repaired it is replaced. Most extended plans do not have deductibles and are given priority.

This adds up to peace of mind, convenience and time saving, and those benefits are priceless.

 Consumer Reports should consider all the input and study the variety of extended warranties now available.   Our industry has matured and offers phenomenal value.

You may be able to find the article at http://www.consumerreports.org

Guarantee or Warranty

What do your guarantee?  What do you warranty?  Here are definitions according to the on line Encarta Dictionary.

Guarantee:  a formal promise that a product will be repaired free of charge if it breaks or fails within a particular period or that substandard work will be redone.

Warranty:  a guarantee on purchased goods that they are of the quality represented and will be replaced or repaired if found to be faulty.

I laugh when people try to tell me there is a big difference. You can look up and memorize all the other legal definitions of these words and no matter how hard you try, you still will not defer your customer from expecting you to stand behind your product, your extended warranty or any promise they believe you have made when they gave you their money.

Do the right thing always and you will enjoy the benefits of raving customers.

Check out this video opening of the Spike Lee monvie “Do the Right Thing” with Rosie Perez featured in the opening credits.  I am not sure it will remind you to stand behind every thing you do, but it sure is entertaining!

http://www.youtube.com/watch?v=dyDWNT0TnZE

Who Owns the Obligation to the Customer?

This is a silly question.  If you have to ask, you probably do not deserve the customer’s money.  The bottom line is simple. If you took money for an Extended Service Plan, you owe it to the customer to go out of your way to make sure they get what they think they deserve.  Otherwise, you won’t have a bottom line.

 

Whether you are a retailer, a manufacturer, a distributor or a TPA/Insurance company, if you are in the pathway of the customer’s money you are accepting an obligation.  Everyone owns that relationship together.  Everyone succeeds together or loses together.

 

Take care of you customer.

Do Customers pay too much for Extended Service Plans?

This is pretty simple.  The prices for extended service plans are based on elementary math and statistics.  Take the average frequency of failure and multiply it by the average cost of repairing or replacing the items. Add in the cost of overhead and you have the break even.   That is the least a customer should pay to share the risk with their fellow customers. Some merchants will use the plans purely as a way of tying their customers to their stores, while lowering their own risk and cost of satisfying customers.

 

Where the pricing can be inflated is dependent upon how much the TPA/Insurance Company and the Retailer or Manufacturer think their roles are worth from a profit perspective.

 

If you as a customer like the convenience and peace of mind of removing your risk of owning that product, then you will look at the pricing like that.  Consumers should never have to consider whether or not a company will be around to pay claims or will come up with ways of not paying. If that is part of the equation, then shame on our industry.

 

Like anything else, ESP should represent value.  How that value is measured is the question.