Warranty Management Part 1: How Should Warranties be Managed?
Managing the warranties which a company provides for products seems deceptively simple – promise the customer that your product will function for a certain time, and, if it doesn’t, for some unforeseen reason, replace it. Most organizations in a recent survey have a warranty management system in place. Since warranties can build goodwill with customers and increase confidence in the overall quality of a company’s products, handling warranties effectively is essential. Companies don’t often realize how much impact returned merchandise has on their business, and warranties are a good way to make sure that impact is positive.
Warranty management, however, can be much more complicated than many people may realize. There are a number of challenges involved with managing a warranty system well, and while many warranty systems do function, there is often more than they can do. Companies with suboptimal warranty management systems may have trouble handling warranty claims internally, ensuring customer segmentation, providing acceptable benefits, satisfying customers, or mitigating fraud. They may also be spending too much on their systems or forgetting to use the systems for revenue. All of these issues, when handled well, however, can help to streamline the warranty management process and ensure other benefits for a company.
Most companies handle warranty claims internally, but many don’t have a dedicated department to handle warranties. Dedicating a department to all processes involved with warranties and service issues helps businesses centralize and streamline processes, increasing their maturity and ability to serve customers. The major advantage of a centralized internal department is maintenance. Companies can benchmark their processes, minimize repetition, and monitor performance, all in one place. Efficient processes mean that warranties are handled smoothly, with minimal fuss for both the company and its customers.
Customer segmentation is a common practice when offering warranties, and it involves categorizing the customers who request warranties. High-value customers must have their warranties satisfied quickly to maintain goodwill for the company, while fraudulent claims must be identified and not honored. Dividing customers in this way is essential if companies wish to handle warranties optimally, but the segmentation process often is not as efficient as it could be. There is often not a standard set of processes for segmentation, which could result in customers being sorted incorrectly. Incorrect sorting could both cause dissatisfaction for a customer and significant revenue loss for a company. Treating warranties in a “one-size-fits-all” manner could be problematic.
To be effective for both customers and companies, warranties must provide customers with a better benefit than pure satisfaction. People aren’t likely to return a defective product unless they are compensated fairly for their trouble, and just taking back a product isn’t enough. Many companies offer replacement products free of charge, and others offer repairs. Customers who feel confident that the products they purchase are reliable, and that replacing the occasional defective product won’t be too troublesome, are more likely to be repeat customers, as well as to tell others about their positive experience. Catering to customers in this way indirectly provides companies with better rates of business.
Customer satisfaction and fraud mitigation are intertwined areas that a warranty management system needs to get right. Fraud may involve people trying to benefit from warranties, so making sure this doesn’t happen is essential. Companies should analyze returns thoroughly and monitor product lifecycles closely. Most companies believe they satisfy customers well, but cases for which this warranty process fails can be particularly problematic because customers will almost certainly find other companies to suit their needs.
Mismanaging the warranty management system may mean that handling these claims takes up a much more significant portion of a company’s revenues than it otherwise should. Some companies don’t know the financial impact of handling warranties on their operations, and this can result in missed opportunities. Most companies keep the cost of their warranty handling low, but some companies still find it difficult to lower costs. Keeping warranty costs low for a company as a continuous area of improvement keeps customers satisfied and products continually improving.
It is possible for warranties to generate revenue for companies, but most companies do not do this. Many customers see warranties as a significant factor when choosing a company to satisfy their needs. Warranties offer an excellent way to communicate with customers and to create the potential for repeat business. Actively increasing communication with customers makes repeat business and increased revenue much more likely, and it also can increase revenue indirectly by catching defects and increasing satisfaction.
At SteamChain, we offer companies the ability to create performance-based warranties which can address all of these challenges. Interested companies can learn more about these warranties by reaching out to us at SteamChain to learn more about creating a customized warranty management solution. For general information on how we can solve these challenges with performance-based warranties, readers can see part 2 of this article.