Saturday, February 19, 2011

Present Warranties as Insurance, not Assurance

Shoppers prefer a product that carries a warranty over a product that doesn’t, everything else being about equal. Consumers will pay more for a product when it comes with a warranty. All this suggests that an advertisement or a salesperson should specifically mention the warranty. But what should the ad copy or the salesperson say? What about the warranty makes the product more attractive?
     Both consumer behavior research and retailers’ field reports suggest four possibilities:
  • “The warranty is like an insurance policy, letting you know that if anything goes wrong, your costs to make things right will be zero. You don’t need to reserve money to pay for repairs that are covered by the warranty.”
  • “The warranty saves you from worry that you’ve made a bad purchase decision. There’s less uncertainty and more predictability when your purchase comes with a warranty.”
  • “The warranty is assurance to you of product quality. The manufacturer or retailer offering you the warranty is saying that they have high trust the product is made well and will serve you for a long time.”
  • “By purchasing a product with a warranty, you send a message to all manufacturers that you place a high importance on them standing behind the products they produce.”
     These four messages are related. They’re not completely independent, so you might want to say more than one to the shopper. However, the warranty is only one of the product features. People don’t buy a product principally because of the warranty. In addition, the consumer’s time and attention span are limited. So where should you place the primary emphasis?
     Researchers at University of Chicago and University of Singapore explored this question by analyzing consumers’ reasoning about warranties for cars—an end-consumer product—and for computer servers—a business-to-business item. They found that warranties are more likely to influence purchases when presented with one or both of the first two reasons than one or both of the second two. The shopper thinks of the warranty more in terms of insurance against loss than in terms of assurance of product quality.
     Consumers with a relatively high tolerance for risk will be more motivated by the “you don’t need to reserve money” argument. At the other end of the dimension, consumers with a low threshold for accepting risk will be more motivated by the “the warranty saves you from uncertainty” statement.

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Make Extended Service Contracts Worthwhile

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