Warranty Wise

My Pedal Broke last weekend

Talk about timing.  I was in Tahoe this last weekend for three days of downhill rides. One at Downieville, CA (a 17 mile downhill rippin ride), another at Hole in the Ground near Donner Pass, CA, (a gorgeous ride in a beautiful canyon all over granite with Sierra vistas) and the other called Mr. Toads on the South Shore of Lake Tahoe, CA, where we rode from Oneidas road at 6500 feet elevation up 8 miles to Armstrong pass at 8800 feet, hung a right and rode up another 2 miles up 600 feet along the Tahoe Rim trail before we descended down the famous Mr Toads Wild Ride and Saxton Creek back to Oneidas, (down granite waterfall, natural and man made stairs, and gnarly banked sweeping turns).  Wow doesn’t even come close…Awesome…..

Guess what. A pin and a spring of my Time pedals broke and disappeared.  Fortunately I discovered it before I ascended. The good news was there was a bike store nearby.  The bad news is they did not have the pin and spring I needed to repair the pedal.  I had to buy a new set.  My direct replacement was $199.99.  I only had a C Note so I had to buy the lower end model.

What would have happened if I had a replacement plan with accidental damage?  I could have called and got authorization for replacement, got the better pedals and have been in good shape….Did my bike store offer me a comprehensive replacement plan?  No.  Did the selling bike store offer me a pedal replacement plan?  No…

The bike industry is begging for our industry to help out.  This industry does $16B a year….

No Visible Bike Warranty Programs at Interbike

We attended Interbike this week… www.interbike.com

Fantastic show….Exciting show….lots of flashy carbon fiber racing bikes….new lighter versions of our favorite mountain bikes…tremendous electric bike selections…..hosts of other versions of things on wheels….most noticeably to me besides the e-bikes was the attention to the women’s market. This industry seems to have taken notice and is spending a lot of money to relate and serve the female industry…Smart.

What was missing was a focus on customer service programs and warranty programs…There is a huge opportunity here….I did not see booths with warranties, service center advisors, software for service, pretty much nothing in this regard.  When I ask myself why, the only answer I can come up with is that the industry is focused mostly on the independents and they make their money doing service and repair…..Even some big boys like Sports Authority and REI do their own service, but nevertheless, why has this not been developed and marketed in a big way? Maybe everyone assumes that bikes can be fixed by consumers?  This can’t be.

Why are there no replacement plans for the big retailers that do not do service?

Why are there no service plans for people that are traveling with their bikes and need a reputable service center?  Who manages this network?

Why are there no maintenance agreements for people out there to offer or buy?

I think I may take this bike opportunity for a ride…anyone want to tandem with me?

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….

Wear and Tear Fear

I was asked last week by numerous potential customers about our ESP program we were introducing at a show I was at, “what happens if the drill just wears out”, or “are you just going to tell me that I wore it out and that it lasted beyond its intended use”?  I am dumbfounded by this question?  I would expect, “what if I drop it?” I would expect, “what if it is used for rental or commercially”?  I would expect, “what happens if it gets wet”?  I would not expect, “are you going to cover it if it wears out?”

Our industry better be careful.  If the reputation is that we are not even going to cover wear and tear we have a problem. Isn’t that a benefit of buying an Extended Plan?  Yes, sudden failure, and unexpected problems are a must, but how can we even think it is ok to say something like, “sorry that is not covered, you used it up”.

How can we continue to expand our dealer base if there is a Fear about Wear and Tear?  Come on Industry….

Listen to this as a reminder, Jimmy and Robert and the band performing "Wear and Tear".  Found it on You Tube….

http://www.youtube.com/watch?v=HJ3nLZ_J04c

Non Typical Extended Products

It is obvious you can buy extended plans for everything from consumer electronics to appliances to vehicles of any shape and size.  You can buy whole home packages.  You can buy replacement plans and repair plans. You can buy maintenance plans for business and home alike. 

What products would you like to see more often? Here are some on my short list

Door replacements

Wall patches

Tile Grout Removal and Replacement.

Sewer and Drain

Air Conditioning and Heating

Water Systems and Timers

It seems that these items cause me more time and money than any CE product in my home.

What would you like to see?

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

Replacement Plan Options

What type of replacement plans do you offer your customers?  Did you decide by what benefitted them the most or what made it the easiest on you and your company?

1.      Over the Counter/In Store

2.      Mail In and Wait for a Replacement or Gift Card?

3.      Advanced Replacement Mail In

4.      Hybrids or combos of the above

This week we will explore a variety of options and terms out there today.  Think about your programs and your competitors programs.  Each have operational advantages and disadvantages.  Each have consumer satisfaction advantages and disadvantages.  Each have benefits and risks.

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

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.