Why Guarantees Can Ignite Your Sales Process

wgciyBack in the 1890s, when John Wanamaker first promised a money-back guarantee on every item sold in his department stores, he had no idea what a powerful business tool he’d developed. His aim was to help the public feel protected from the wide assortment of snake-oil salesmen of the day. Today, quality consultant and former Harvard professor Christopher W.L. Hart preaches a similar strategy, transforming that simple promise into a vital business technique called the extraordinary guarantee. This time around, Hart has shown that the guarantee can have a huge impact on service companies—helping to deliver excellence and win customer loyalty. While Wanamaker’s guarantee reduced the customer’s sense of risk, Hart’s extraordinary guarantee is intended for the company. By promising customer satisfaction, the strategy not only helps to pinpoint what it is clients want, but it forces a company to recognize its operational shortcomings. It’s a form of self-motivation, causing the business to stand behind its performance.

At first, these sound like tall claims. But with the right guarantee–properly implemented-you’ll quickly target systemic problems, build marketing clout, create enormous customer loyalty, and boost your bottom line.

Put Your Company to the Test

Although any business with a guarantee gains a tremendous advantage over its competitors, service companies benefit the most from such an offering–because for them customer satisfaction is the product. Traditionally, measuring satisfaction has been difficult. For example, how would you gauge the defects in a public relations or marketing campaign? Usually, the client’s response is the most important yardstick of quality, and there’s no better device to measure satisfaction than with a guarantee program. Because of this and the following reasons, it’s time to put your company to the test.

First, a strong guarantee will help your business break out of the sea of muddy mediocrity and into the limelight by differentiating itself. Second, it guards against the occasional tendency to take on too many accounts in relation to available resources. And last, it reduces the temptation to overpromise during the sales process.

There is one caveat, however: Certain service businesses should shy away from payout policies, otherwise known as 100 percent money-back guarantees. Ventures that are financially dependent on a few large customers, for instance, could be quickly forced into bankruptcy by such a promise. But there are scores of alternatives that offer the customer something the entrepreneur can control. For example, an airline that constantly pays out on a guarantee because of bad-weather delays might find other innovative ways to keep customers happy, such as providing special snacks, extra drinks, or allowing free use of airline telephones. The best rule of thumb when implementing a guarantee is to carefully weigh your costs against the exceptional benefits.

Picking Your Promise

Guarantees come in two forms: explicit and implicit. When a company offers an explicit guarantee, it clearly states what it’s promising and what it will do if it fails to keep up its end of the bargain. An implicit guarantee leaves these elements unstated. That’s not to say it’s weaker; indeed, an implicit guarantee can be the stronger of the two types. But first, the explicit.

Specific guarantees. Fortunately, a guarantee doesn’t have to offer complete satisfaction to be extraordinary. Specific guarantees spell out certain elements of your product or service you specifically stand behind. If some other element fails, you are not obligated to compensate the customer for it.

This type of guarantee has the added advantage of highlighting your product’s strengths. carpeting manufacturers, for instance, often offer guarantees against staining or fading. And knowing that the world traveler image is one that highly appeals to its customers, Rolex guarantees free servicing of its watches in major international cities.

Although it’s difficult to measure the elements of a service since they are often provided under adverse conditions (such as in crowded restaurants or traffic jams), Domino’s Pizza built a system that hurdled such details. Some of its franchises used to promise to deliver a pizza within 30 minutes or else the customer ate for free. Federal Express is another example: Its assurance that packages will be delivered by 10:30 a.m. the next business day continues to inspire client confidence.

In fact, the ability of a specific guarantee to call attention to a company’s strong points is so beneficial that some businesses actually offer a money-back guarantee but disguise it as a specific. For instance, Florsheim gives purchasers 30 days to return shoes for a full refund if they find them uncomfortable; but discomfort is so subjective that the company is essentially giving an unconditional guarantee phrased so as to stress the company’s confidence in the comfort of its product.

Limited-scope guarantees. Some entrepreneurs find it too risky to offer a specific guarantee, especially for business owners whose ability to meet certain criteria is truly at the mercy of uncontrollable events. But there are other ways of limiting risks so that a guarantee can be extraordinary without being foolhardy. One solution is to require the customer to meet preset conditions, thereby taking the burden off the company. The pest control service Prism, for example, is famous for its guarantee to completely eliminate roaches–for good. The catch: Customers have to religiously follow the maintenance routines laid out for them. If they stray from the instructions, the guarantee is void.

Another risk-free tool is the replacement-only guarantee, which offers customers a product or service of the same type rather than a cash refund. The cost to you is far less than any other form of guarantee, and it prevents the client from taking the money and running to a competitor. In essence, replacement-only forces people to give the company a second chance. Take Scrubadub Car Wash. It promises to wash its patrons cars again and again until they’re satisfied the car is immaculate.

Even less risky than the replacement-only is the repair-only guarantee, in which a company will continue to fix a product until the customer is smiling. Jaguar, for instance, added consumer convenience to the solution by providing a free loaner car to any owner whose car is being repaired. Similarly, service firms can give a no-fee-until guarantee, in which the bill is withheld until a certain performance requirement is met. This device offers added protection: If customers are dissatisfied, they can’t simply ask for their money back and flee. Instead, they’re forced to give the company more time to make good on its promise.

Unconventional payouts. An entrepreneur who wishes to make his company name stand out without taking wild, costly risks can become creative with the payout offering, which works like a money-market fund. Here the idea is to guarantee the amount of money a customer will make, promising to pay the difference between the guaranteed amount and the actual earnings. Sotheby’s art auction house, for example, guarantees that if an item sells for less than the company said it would, then Sotheby’s will make up the shortfall.

Some marketers add a personal touch by avoiding straight financial compensation. The insurance company Empire of America buys lunch for customers who have to wait in line more than five minutes. And First Union National Bank of Charlotte, North Carolina, delivers a dozen roses to clients victimized by bank errors.

Other organizations, recognizing that their customers’ highest priority is to satisfy their own clients, offer pass-through guarantees, in which the customer’s customer is the beneficiary. Prism pest control tells restaurants and hotels that it will pay for the meal or room of any patron who spots a roach; it also sends that person an apology letter.

Faced with such a wide variety of payouts, you may despair over selecting the one that’s most appropriate for your type of business. Actually, you don’t have to choose–just leave the choice to the customer. A number of consulting firms, for example, have given their clients the option of either getting part of their money back to reflect their degree of dissatisfaction (a sliding-scale guarantee) or letting the firm work on the project for free until the customer is satisfied.

Implicit guarantees.

Offering a guarantee does not mean you have to specify a payout–or any other element of the promise–to make your clients feel protected. When your offer is implicit, the guarantee isn’t expressly stated, but customers feel they can count on you anyway. For example, Nordstrom department store is known for its willingness to compensate dissatisfied shoppers. Yet nowhere in its promotional materials does the company specifically say that it offers any sort of guarantee. Businesses that inspire patrons to feel an implicit promise are in an enviable position.

With an implicit, you also don’t have to worry about the guarantee appearing as marketing hype. Instead, it’s perceived by customers as simply doing what’s right. A case in point: Flyaway Avian Averting Systems, a service that prevents birds from roosting on rooftops, withholds its invoices until the customer reports that the birds are gone for good. The company doesn’t appraise clients of the policy ahead of time, but it does depend on them telling other potential customers about their satisfaction. And Child Development Products, a mailorder toy company, authorizes its telephone operators to provide refunds of up to $25-although it never brags of its policy.

The implicit guarantee is perceived as a classy way to impart an image of reliability. Unfortunately, such a promise has to be earned through instance after instance of making good on customer dissatisfaction. Thus the implicit guarantee might best be viewed as part of a later stage in a firm’s quality evolution.

A company can also ease itself into an implicit guarantee by offering an explicit one that covers a portion of its service and having an implicit in place to cover the remainder. The implicit then acts as a safety net, catching customers before they leave the system and compensating them to restore their satisfaction.

Once you’ve finally selected the type of guarantee that best suits your business, a well-designed program must be put into place. Just remember, even the best plan is likely to be an unmitigated disaster if your company doesn’t move fast enough to boost its quality to the level of performance promised. Achieving quality in concert with the guarantee is your biggest challenge as an entrepreneur.

Look Before You Leap

By asking the following questions before launching your guarantee campaign, you’ll create a custom-designed plan that best suits your customers.

What is my company’s track record? If the business does not already have an established history of going to great lengths to satisfy customers, consider a guarantee that defines exactly what’s being promised.

How costly will it be to communicate the guarantee? A company that has many painless opportunities to prove itself has a better chance of succeeding than a company that has only one or two. For example, a restaurant can easily communicate satisfaction by “comping” meals for inconvenienced clients; a wedding caterer, however, may end up waiving a substantial portion of its annual income before word spreads that it will do whatever it takes to satisfy customers.

Can I afford to wait for the benefits? Start-ups or companies needing an immediate marketing boost should avoid offering an implied guarantee and simply state exactly what it’s promising.

Is my service measurable? If your customers can only pass judgment using entirely subjective standards, turn to more unconventional forms of compensation.

What are the uncontrollables? Some companies are subject to too many elements to permit the consideration of a money-back guarantee. But many service companies succeed by restricting the guarantee to predictable elements, such as eliminating waits or becoming more courteous to customers.

Would my business be susceptible to unreasonable triggerings? Uncontrollable triggerings can be painful–especially for service firms. But the gain may be worth the pain. One consultant who offered an unconditional guarantee, for example, was told by a client that he should have provided a full, formal report at the end of the project– despite the client having agreed to a summary report to hold down costs. The entrepreneur responded with a full report at no extra cost. Since then, the same customer has returned with several larger assignments.

What is important to my customers? Survey clients to identify one or two key elements that push theft hot buttons. For example, vacationers tremble at the thought of lousy weather. So Holiday Inn of the Cayman Islands guarantees scuba diving customers that if it’s rainy, the excursion is free.

What’s my company best at? Consider offering a guarantee based on your company’s strongest characteristics. Take Delta Hotels: It beefed up its front-desk coverage to the point where it promised one-minute check-in or a free room.

Are there elements of my service or product that need emphasizing? Remember guarantees work because they promise something unexpected.

Is my service well defined? Even companies whose results can be nearly impossible to assess find something on which to focus. It ranges from meeting deadlines to helping clients reach a level of profitability.

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The government’s pro stand on conservation and preservation is also a key issue. With an ear to the earth and an eye on the future, the following three entrepreneurs are growing successful companies from the seeds of environmental concern. Their stories may generate the spark you need to start your own eco-friendly business.

Jane Klimek, Eco Tech Inc. After learning that many companies don’t bother to reformat disks after one-time installation on their computer networks but, instead, opt to store them indefinitely or simply throw them away, Jane Klimek saw a niche.

Klimek, 36, launched Eco Tech in 1992 to Continue Reading »

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A Supporting Cast

Janet Lynn, a speech pathologist, started her own private practice in 1984, concentrating on children in private schools. It thrived until 1987, when a major illness knocked her out of commission for four months, and she was forced to refer her clients elsewhere. Discouraged but not beaten, she began rebuilding her business, this time expanding her Continue Reading »

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