You’ll like this column. I guarantee it*

When a consumer is considering whether to “buy” a product or service, they are facing a risk that it won’t live up to their expectations.  That risk can be reduced by a guarantee.    For the business owner, that reduction in perceived consumer risk means an increased propensity to buy, which translates to additional sales.  For that reason, guarantees should be considered a marketing tool rather than a cost of doing business.

To determine how important a guarantee will be to your business, you need to put yourself in your potential customers’ shoes.  What fears do they have?  Different products and services generate different fears.  For a food item, someone might worry about taste, or shelf life.  For tires, someone might worry about safety, or longevity.  For a haircut, someone might worry about social embarrassment.   Until you know what people are worried about, you don’t know what to guarantee.  Don’t guess.  Talk to your customers and make sure you’re addressing their real fears, or your guarantee may miss the mark.

Fears are a function of expectations.  People have an expectation, and they fear that a product or service won’t live up to that expectation.  So once you’ve identified the fear, you need to identify a common expectation.  That expectation may be set by the customer (“I’m not buying a car whose engine won’t last 50,000 miles.”) or by the business (“You’ll get 40 loads of wash from this box of detergent”)  Either way, you’ll want to be sure that you and the customer quantify the expectation that is being guaranteed and the circumstances that will trigger the guarantee.

Next you should decide what form the guarantee will take.  The most common forms are either

--a partial or full replacement or do-over, or

--a partial or full refund

Companies tend to prefer replacement, because it is less expensive for the company and because it keeps the consumer captive.  Consumers tend to prefer refunds, because if the product or service fails, they lose faith in the company, and would rather take their business to someone else.   The company needs to weigh the greater power of a refund against the lower cost of replacement.  The competitive environment will have a lot to do with this—the company can decide whether to match competitive guarantees, live with a less effective guarantee, or use a better guarantee to gain a competitive advantage.

Within this general framework, there are six specific factors a company should consider:

--What is the customer spending?  If consumers are spending a small amount (think “candy bars”), a guarantee can be relatively unimportant.  There isn’t a great deal of risk in a $1.00 purchase.  For someone spending $50,000,000 on a new computer system, however, there is a huge risk, and a guarantee will be absolutely necessary.  The most interesting area is one where both the product and the risk are subjective, like a haircut and the social embarrassment which a bad one can generate.

-- What is your failure rate—how often will  you have to “pay out”?  Your quality control determines both the degree of need for a guarantee and the strength of that guarantee.

--How well known is your product?  A well-established product with a good reputation has much less need for guarantees, because people don’t perceive the degree of risk they might fear from a product with no track record.

--How long do you guarantee your product for?  Guarantees may range from the first 10 days of use to the lifetime of the product. 

--What amount of liability is the company ready to assume?  Most companies re-insure their guarantees against catastrophic failures (ie. a huge auto recall or poisonous pharmaceuticals).

--Not everyone will take advantage of a guarantee, even if it is justified.  Most people with a tire that has a guaranteed life of 60,000 miles are unlikely to demand compensation if it wears out at 59,500 miles.  And for small amounts of money, the effort of obtaining the redress promised by the guarantee is often not worth the effort.

*Guarantee made for illustrative purposes only.  I mean, you didn’t really think I was going to guarantee a column, did you?  Besides—you liked it, you know you did!