Guarantees are good for business

There’s evidence to suggest that an extraordinary guarantee can have a direct effect on how likely a person is to buy from you. And by "extraordinary" I don’t mean the old "satisfaction guaranteed", not even when it’s teamed with "or your money back" type guarantee. I’m talking about a new way of guaranteeing your product or service that is much more effective than these and that can really contribute to improving sales, attracting more new customers, and getting greater loyalty from your existing ones.

That way of looking at guarantees is in terms of what’s known as "risk reversal" and we’ll explain what risk reversal is all about and provide you with some ideas on how you could go about using this concept to develop an extraordinary guarantee for your business.

• The value of an extraordinary guarantee – how guarantees can promote your business and improve sales
• Why weak guarantees don’t work
• How to use risk reversal to develop an extraordinary guarantee that encourages people to buy from you
• Promoting your guarantee for competitive advantage

Let me start by summarising the business benefits of a good guarantee. Here is a list of the areas an extraordinary guarantee can contribute to – and it’s extensive. Possibly no other single element in your marketing has such a wide-ranging influence. Having an effective guarantee and using it well can have a significant impact on your profitability.

• Increase inquiry rates
• Increase conversion rates
• Presents upsell and onsell opportunities
• Improve profit margins
• Increase customer loyalty
• Increase referral rates
• Improve satisfaction
• Improves product / service quality

Guarantees increase response rates

Let's look at just one of these – how a guarantee can increase response rates. Some research has suggested that just offering a guarantee alone can increase response to marketing material by up to 350%. The classic story, of course, is this one.

Once there were two brothers by the name of Monaghan. Together they ran a pizzeria to pay their way through college. While one worked the day shift to attend school at night, the other did the reverse. After about a year in what was proving to be a money-losing venture, one of the brothers sold his share – probably thinking he’d done the smart thing.

The other, with a good dose of perseverance, decided to make something of his fledgling pizzeria. His first thought was to put a guarantee on his delivery - not that he was sure it would change much, but it was an idea.

History tells us that his decision was the greatest one he ever made. By simply marketing the strength of a guarantee, i.e., "Pizza delivered fresh in 30 minutes or it's free," Domino's Pizza became the multimillion-dollar franchise operation we know today.

Similarly, many Wellingtonians remember "It's the putting right that counts". At times it even meant his wife picking up and delivering loads of washing when a machine broke down or delivering a small replacement TV when a TV broke down. Only more recently did LV Martin finally become part of Smith's City.

An extraordinary guarantee inspires trust

There’s a common thread to these effective guarantees – they inspire trust in the business that offers them. A person dealing with any of these businesses and seeing their guarantee is likely to think something like this: “If you're offering this guarantee, you must be very good at what you do. After all, you’d be stupid to offer such a guarantee if you were poor at delivering your promises and services.”

In the prospect’s mind, your guarantee has gone a long way towards ‘proving’ that you can give them exactly what they need. That is to say, you have gone a long way towards tipping the scales towards a sale.

Let’s face it, you’ve got some barriers to overcome in selling these days where the market is characterised by a wide range of choices among look-alike products, most competing primarily on price. Add to that a high degree of scepticism among consumers who have had bad experiences trying to return, or replace, or get a refund on, goods they felt were faulty. Suddenly they discover there’s no service available, or that the refund policy has a list of conditions that stack it in favour of the supplier, or that the guarantee is worthless because of exclusions buried in the fine print.

Given these observations, how do you plan on convincing potential new buyers that you are different?

The concept of risk reversal

Let’s look at it from the prospect’s angle. Every time they go to buy something they put themselves at risk. It can be the risk of the product not performing. It can be the risk of things not working out as planned.  Whatever, it comes down to the risk of not getting what they’ve paid for.

When a prospect is thinking about doing business with you, often the biggest single impediment to them proceeding is the voice inside their head that asks "Will I get the result I want?"  If the level of perceived risk is high enough, the prospect will simply not make the purchase.

So say you had a way of removing as much of this risk as you could. If you can guarantee that the customer will get the result they want, or be adequately compensated if they don’t, with absolutely no risk to them, it stands to reason that it will be easier for them to say "yes" to your offer.

Risk reversal is about transferring a degree of the risk of purchasing off the shoulders of the prospect and onto your own. There’s no better way to inspire trust.

A risk reversal guarantee

Here’s a guarantee for a photographic studio that demonstrates how this works. Let’s say the wedding photo segment of your business is significant for you.

First, imagine what’s going on in the minds of the happy couple regarding their wedding photos. These are meant to record one of the happiest days in their lives – all their family and friends will want copies as reminders also. What is going to sell you to them? Sure there’s the inventiveness of your locales and your technical ability but the point is – what if something happens to the camera and those great shots are lost? That being the major pain spot for the customer, can you ease their concern in some way?

Well, how about a guarantee like this:

If, because of any fault on my part, your wedding photos do not come out I will:
- Have the bride's and the bridesmaids' dresses dry-cleaned
- Re-hire or dry-clean both sets of parents’ outfits
- Re-hire or dry-clean the groom’s and the groomsmen’s suits
- Pay for another bridal bouquet and bridesmaid’s bouquets of the same design
- Re-hire the wedding cars
- Re-book the venue
- Re-invite the guests
- Have a copy of the wedding cake made
- AND REDO THE PHOTOS!

Put yourself in the place of the young, about-to-be-married couple who check out two photographers. One says, "Trust me. I’m an expert at this". The other says, "This is your special day and it’s important that you have a great set of wedding photos as a reminder... and that's why I offer this guarantee."

Who would you go with?

Applying risk reversal

This is a perfect case of a guarantee that is based on risk reversal – the risk of doing business with the company is now transferred to the business owner. If the photographer drops the camera in the pond on the way home the customer will still get their ‘wedding day’ photos. So what have they got to lose?

Risk reversal can apply in several ways. This example was about ensuring the fulfilment of the customer's needs. It can also work on the straight money angle – some businesses don’t take any money until the customer signals they are happy with the product or service. For instance:

• An advertising consultant provides his services for free if the client doesn’t experience an agreed % increase in sales
• An interior decorator won’t expect payment until their client is completely satisfied with the work they’ve done, or
• A commercial safety helmet distributor offers to buy back any units not sold in the first three months
• A music teacher guarantees your child will be able to play ‘Old Macdonald’ on the piano or you’ll owe them nothing

 In each case, the customer has made a risk-free purchase – because they know they’ll get what they need, an increase in sales, a decor that’s just right and a child who can turn out a tune in front of company, or they won’t have to pay; the seller has ameliorated the risk in the deal as much as possible.

Won’t it be abused?

Now comes the obvious question; if I offer this sort of guarantee aren’t I asking to be ripped off by unscrupulous customers? Let me deal with this in two ways, by considering product quality and some statistics.

Quality products and services

To be able to offer a guarantee like this you need to be sure you can deliver on what the guarantee covers - top quality products and top customer service - whether it's that; on-time delivery every time, satisfaction with your services or being available on the emergency contact number 24x7 - or whatever.

Whatever the basis of your guarantee you need to be able to deliver. And if you can, then where’s the risk in offering the guarantee?

On the other hand, if you aren’t managing these things in the normal course of events then doesn’t it suggest that you are not giving customers what they really want anyway - and your lack of preparedness to offer a strong guarantee suggests that you know this is the case. So the ball is in your court here to improve the business first.

Statistics - The Numbers Are On Your Side

Secondly, let’s think about the numbers.

It's probably only 1% or 2% of all the customers out there who are truly unreasonable or will try to cheat the system - and they'll probably find a way to cheat you whether you offer a guarantee or not. So, on balance, it’s much more likely that the improved sales that result from your guarantee will more than compensate for the cases where people try to take unfair advantage of it.

It’s far better to develop an extraordinary guarantee which is attractive to the 98% of customers who are honest and develop other ways to protect yourself against the not-so-honest 2%.

Creating a risk reversal guarantee – look at yourself and your competitors

Let’s turn to how you might develop one for your business. That’s an analytical process but it has to start with a basic fact – the current quality of what you do. As I said before, your risk is minimised to the extent that your product or service offering is high quality to start.

So start by looking at whether or not you are getting complaints from customers and fix those issues before considering developing a risk reversal guarantee.

Then do a bit of detective work. Check out if your competitors are offering guarantees of any sort and what they involve. You may get some ideas of your own from this. You may even find that they have yet to catch on to risk reversal which will give you the edge. Even if they do use a risk reversal guarantee you could still come up with something better.

Creating a risk reversal guarantee – look at your customers

Now focus on your customers' perspective and ask yourself what the result is that the customer wants from your goods or services. This isn’t meant to be complicated. For instance, with the wedding photographer, it was just "a set of good quality wedding photos". The parent just wants their child to be able to play a tune on the piano.

After that, think about the three or four main reasons you think a person would hesitate to choose you as a supplier. Usually, the top one is that for some reason or other, they are concerned about investing with the risk that their money will not get them what they want.

If you understand their main pain points then you can address them in your guarantee – which is exactly what the wedding photographer and the music teacher did.

Develop the guarantee

Knowing this information you can now set about thinking up a guarantee to remove any doubts from the customer’s mind and that will make them feel 100% secure about dealing with you. But be sensible. Remember the examples of the advertising consultant, interior designer, safety helmet distributor and the music teacher. They didn’t just pull those guarantees out of the air - they based them on knowledge of their capabilities, of getting prior agreements on what’s involved in the job, and of knowing that ‘Old Macdonald’ is not so difficult a piece of music that almost any child can conquer it.

Guaranteeing inputs vs guaranteeing outputs

You may have noticed that so far examples have been about guaranteeing the final product – a set of photographs, a bug-free room, even a child who can play a particular tune. But there are some situations in which it doesn’t make sense to guarantee the outcome of your product or service because there may be events beyond your control that can ultimately, or even suddenly, remove the customer’s satisfaction with the product.

Say you install outdoor storage sheds. You use top-quality materials but you can’t guarantee that that shed won’t fail in some way in the future, for instance, because of soil movement, water leaks rotting the floor, vehicles bumping the doors and knocking them out of alignment and so on.

In cases like this, change your focus to guarantee the things which you can control, the "inputs". You could word your guarantee to talk about how you build your floors from particular types of materials that minimise the chance of rot, that you build doors that are braced, trimmed and glued to resist all reasonable impacts and so on.

Every one of these guaranteed parts and actions takes part of the concern out of the buying decision for the prospect about the quality of the product they are buying and improves their view of your trustworthiness as a supplier.

With guarantees, simplicity Is a virtue Based on your knowledge of what you can and can’t guarantee write up what you finally decide on in the clearest and strongest way possible that demonstrates how you remove the risks of dealing with your business and why that makes it a better one to deal with than any of your competitors.

What your guarantee has to do is eliminate any fears your prospects have that they will be making a risky decision by purchasing from you. The simpler and stronger your guarantee is, the better. Try and avoid any lengthy, hard-to-interpret conditions and the use of those clauses with sub-clauses that you see in some guarantees.

You can ruin a powerful guarantee by hedging it in with condition after condition. Some may be necessary but don’t let a feeling of insecurity make you go overboard. Remember, the quality of your product and the small likelihood of encountering a customer who has deliberately set out to cheat on your guarantee ought to mean you don’t need all those conditions and reservations in your guarantee.

Say why you offer an extraordinary guarantee

You could just print your guarantee as a bald statement and leave it at that, but you can enhance its pulling power by adding one further piece of information - the reasons why you are providing such an extraordinary guarantee.

Take the photographer's example again. You remember his guarantee covered the major expenses in reconstituting the bridal party and set-up to redo the pictures at his expense. That’s good. But it can be a little better. Say he added these words to that guarantee:

I believe your wedding day is the most important in your life and you deserve a beautiful set of photographs as a reminder.

These words express an understanding of the couple’s concerns so they build a little more credibility for the photographer as the right person because he has shown that he understands and empathises with the bottom-line concerns of the couple – he’s on the same wavelength. That’s very powerful when it comes to gaining trust, and as I said, gaining trust is the basis of making a sale.

Test your guarantee

I never suggest implementing any system without also including a way to check results and see what the ROI is. With a guarantee, it's worthwhile testing to see how it performs before making it a permanent part of your marketing materials.

The easiest approach is to try it out in just one of the channels you advertise through or on a letter to just one group of customers or prospects. Then, track the results in terms of how much sales increase per period over what they were in the same period before you had a guarantee.

There’s no reason why you can’t try out different conditions for the guarantee, for instance, in one campaign make the guarantee valid for one period of time and in the second round make it valid for a more extended period. That’s one thing to check on because longer guarantees generally work better.

Promote your guarantee

Now it's time to promote your guarantee. Don’t let it become ‘invisible’ to your customers. After all, an extraordinary guarantee is actually by way of being another UCD, or Unique Core Differentiator, and these are the things that decide a customer to buy from you rather than one of your competitors. They are the things that differentiate you from the rest.

There are several ways you can go about this – get it printed, framed and displayed on the premises; include it in your brochures and on your packaging or invoices; on your stationery, on your website, on your business card, your internet ads and your yellow pages ad.

There's no value to a guarantee if you hide it or don’t promote it every time you have the chance. If your customers and prospects don’t know about it they can't give you credit for it. Your ‘guarantee’ is a wasted business asset if you’re not exploiting it.

Honour your guarantee

Finally, be absolutely certain you are committed to living up to every aspect of your guarantee. Failure to honour guarantees can have disastrous word-of-mouth effects, not to mention legal in some cases. For example, there is a case where two business travellers arrived for a late check-in at a hotel in Houston and found that their reservations would not be honoured, forcing them to look elsewhere.

Their response was to write a witty slide presentation entitled "Yours Is A Very Bad Hotel". The presentation detailed the poor service they received and compared it to a dictionary definition of the word "guarantee". The presentation found its way onto the Internet, was read by tens of thousands of people, and led to the hotel being flamed from five continents. It was a marketing disaster - not only for the particular hotel but also for other hotels in the chain.

Use the feedback

When you do have to meet the obligations of your guarantee do so graciously and promptly. And then look at where things went wrong. As with all forms of customer feedback, whether it's praise or complaint, it can be fed back into making your business more efficient or customer-focused. Having to honour a guarantee might just possibly reveal that you have a quality management issue developing in the production process somewhere, or your installation people aren’t getting it right, or there has been a slip in the quality of the parts you order in to manufacture a product. Whatever, honour the guarantee, sure, but follow up and ascertain why the product didn’t perform and if you need to backtrack and look at your operations.

Conclusion

The important part of any guarantee is not so much that it serves as a marketing tool but that it demonstrates your commitment to customer service. Sure, an emphatic guarantee can do a lot to promote your product or service, but at the heart of it is your fundamental desire to serve your customers. That's what ultimately builds loyalty and long-term relationships.

Since that’s the case, don’t go about developing your guarantee based on trying to figure out how to hedge your bets or make it foolproof by building in conditions or exclusionary terms. That sort of guarantee just makes customers sceptical and dilutes it as far as gaining a competitive advantage for you goes.

On the other hand, an extraordinary guarantee based on trust-building and risk reversal can give your business a significant competitive edge by attracting new customers and maintaining the loyalty of your current ones.

An effective guarantee shouldn’t cost you anything – in fact, it should make money for you.