Longer guarantees can lead to an increase in market share and improved sales revenue. FILE PHOTO | NMG
Product warranties are nowadays a standard offering for
manufacturers selling durable products such as cars, but the length and
breadth of a warranty can make a difference to a sale, with consumers
perceiving the scale of the warranty as an indication of a product’s
quality, making it a way to gain a competitive edge.
In
its recent launch of the Ford Ranger Fx4, Ford Motor Company is relying
is on its new design and road capabilities as its selling points, but
it is also offering buyers a three-year or 100,000km standard warranty
and five-year or 100,000km service plan covering mechanical faults as a
product quality assurance.
“The Ranger Fx4 fills a
unique space in our current line-up as it offers our valued customers a
vehicle that has been personalised..., but introduces an entirely new
level of exclusivity and appeal,” said Kagwiria Mbiti, Head of Ford
Operations at CMC Motors Limited — the Ford vehicles Kenya dealer.
A
warranty can serve as an important product feature in a market where
for consumers, service is key and product longevity is demanded.
As
a consequence, manufacturers have moved to offering longer warranty
periods in a bid to attract consumers and boost the appeal of the
product and confidence in the brand.
In a paper titled
New Product Warranty by professors from the University of Queensland,
Australia, and Norwegian University of Science and Technology, if a
manufacturer offers a better warranty than a competitor then the
reliability of the product should also be better to reduce costs
associated with warranty claims.
“An important purpose
of warranties for the manufacturer is promotional. Since buyers often
infer a more reliable product when a long warranty is offered, this has
been used as an effective advertising tool. This is often particularly
important when marketing new and innovative products, which may be
viewed with a degree of uncertainty by many potential consumers,”
reported the professors.
“In addition, warranty has
become an instrument, similar to product performance and price, used in
competition with other manufacturers in the marketplace.”
Indeed,
it can lead to an increase in market share and improved sales. In a
study by Yale University on consumer perception of warranty as a signal
of quality, the researchers observed that clients value a vehicle
manufacturer’s warranty as a signal of product quality, the longer it
is, the higher the sales.
“In 1999, Hyundai Motors
extended their powertrain warranty from five years / 60,000 miles to 10
years / 100,000 miles. After the warranty change, Hyundai’s US market
share increased from 1.1 per cent to four per cent.
‘‘Dodge
saw an increase in sales between November 2001 and July 2002 after
extending their powertrain warranty from three to seven years. These
suggest the importance of warranty coverage on consumer demand for new
cars,” reported the Yale researchers.
Similarly, they
noted that a manufacturer who reduces the warranty offering incurs a
decline in sales. In 2002, Volkswagen reduced its powertrain warranty
from 10 years / 100,000 miles to five years / 60,000 miles. In the three
years after the warranty change, US sales of Volkswagen cars declined
30 per cent.
“Longer warranties appear to be valued most for automobile models on which the consumer has the least prior information.’’
- African Laughter
No comments:
Post a Comment