Do you offer a high quality product or service? Prove it!

Why offer a guarantee?
A buyer feels a guarantee reduces the risk of purchase and lends credibility to the vendor's product or service quality and pricing claims.

For the seller, guarantees often

• Encourage trial, which increases the likelihood of a final sale
• Encourage buyers to increase the size of their purchase
• Reduce the time to complete the sale.
• Differentiate sellers from their competitors
• Provide feedback to identify problems, and finally
• Motivate management to correct problems quickly

Almost all direct marketers promote ironclad money back guarantees. Retailers often accept returns, but not always. Department stores usually accept them; auto dealers and jewelers usually do not. This, despite a recently published survey in Jewelers Circular Keystone (6/97) that reports when jewelry shoppers were asked what services they were most interested in, 55% said a guarantee/warranty. That's higher than the 46% concerned with quality or 33% with design.

Guarantees are used much less frequently among professional service firms (lawyers, architects, industrial designers, health care, advertising). The Robert Wood Johnson University Hospital emergency room, is unusual in that it guarantees attention by a nurse within 15 minutes and by a physician within 30 minutes – or they pay the bill. Since the program's inception in March 1995 through July 1997, the Trauma Center served 99,000 patients; only 14 requested refunds.

Why don't more firms offer a money back guarantee?
There are three major reasons why vendors fail to back up their quality/pricing claims with a guarantee:

1. They overestimate the costs and underestimate the benefits, often evaluating emotionally, not analytically.
2. They provide a service where positive outcomes cannot be guaranteed, like medicine , law or industrial design
3. They fail to conduct tests that would limit their financial exposure, while allowing them to measure the cost/benefit of guarantees in their marketplace.

Analysis, not emotion
Consider these issues when you evaluate the economics of a guarantee program.

• How much incremental revenue will the guarantee generate?
• How much will the average cost of gaining a new account decline if you reduce the risk to the buyer?
• What might be the range of return rates, over time?
• What incremental percentage of dissatisfied customers will come back to you for future purchases if you remedy their complaints with a guarantee?
• What is the resale value of returns (applicable to merchandise offers only)?
• How does the cost of getting incremental sales from the guarantee program compare to alternative methods of getting the same increase (for example, by more advertising, deeper discount prices, etc.)?

Overcoming the Service Provider's Dilemma
A law firm will claim that it cannot ethically guarantee they will win clients' cases. An industrial design group cannot guarantee the products they design will sell well for clients.

The truth is that the service provider's dilemma is not unique. When you purchase a gift from cataloger L.L Bean, despite their best efforts, they cannot guarantee that the recipient will like the color, the fit, or style. But they will graciously accept a return, even if they delivered exactly what you ordered.

We believe that service providers need to educate prospects about the reasonable expectations they should have from the delivery of their service. Once that is done, it is preferable to offer a broad guarantee based on the client's assessment of satisfaction. That's the best way of assessing whether you are truly meeting customers' expectations about the things they think are important, within the boundaries of what you can realistically provide.

Test, test, and re-test
You can deal with concerns about the cost and effectiveness of a guarantee by initiating controlled tests that limit your financial exposure. Here are some possibilities for test programs.

• Test a guarantee offer on excess inventory first. Maurice Badler Fine Jewelry uses this approach to get rid of excess merchandise, without resorting to drastic price cuts
• Test for a limited period of time. For example, offer the guarantee on all purchases made over the next three months
• Offer a guarantee only to customers in markets where you don't have an established reputation or only to first-time accounts on initial projects
• Limit the return period to 30 days, and gradually extend

Requirements for an effective guarantee
Many guarantee programs are ineffective because they do not meet these criteria:

• Promote the guarantee aggressively up front – not just offered after-the-fact, when you're confronted with a disgruntled customer
• Buyer, not vendor, should be the judge of whether performance is satisfactory
• Keep it simple. A great example is Lands' End, which says, “Guaranteed. Period.”
• Accept returns graciously – avoid making the customer feel unwelcome
• Track returns by reason and customer – to implement corrective action and so (potential) abusers can be screened.

Is a money back guarantee program for you?
How can you assess whether a guarantee program might provide a cost effective tool in your marketing arsenal? Don't rely on asking your customers whether they'd value the return privilege. Many will say no to avoid appearing as if they don't trust you or as if they are likely to demand their cash back.

The best method is to try it out, as we've have described, and evaluate before-and-after sales data.