Market Place

How product sale is linked to length of the warranty

Longer guarantees can lead to an increase in market share and improved sales revenue. FILE PHOTO | NMG
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