To gain the customer's trust in your services, providers can offer money-back guarantees. These are paid out if the customer was not 100% satisfied with the service provided. Can this result in higher sales?
"We come by and train your operators on site. If you're not satisfied, we'll give you your money back." This or something similar could be an offer to convince a customer of your service.
Such guarantees are intended to increase the attractiveness of the service and differentiate the provider from the competition. The result should be reflected in greater profit. But does it work? Clear consultant answer: "It depends."
What is important:
The guarantee should be sensibly designed. Will the customer be refunded the price or receive a credit note? The scope of the guarantee should also be chosen sensibly. You should also consider whether you want to grant compensation automatically or whether the customer must first contact you in order to receive the service. (Example of a blank credit note: You enclose a consumable parts voucher with a spare parts delivery because the delivery will arrive too late)
Fact number 1: Service guarantees do not always make sense
In most cases, simply offering a service guarantee does not have a positive effect on sales and earnings. Instead, a sensible goodwill strategy should be chosen that takes into account the current state of research.
Fact number 2: The scope of a service guarantee should be chosen deliberately
The structure of the guarantee is important. Unconditional, unconditional guarantees have no long-term positive impact on business results. It therefore does not make sense to simply give the customer their money back as soon as they are not 100% satisfied. Specific guarantees that regulate exactly under which circumstances (e.g. late delivery of parts or failure to meet a deadline) a fixed sum will be paid out in cash or as a credit note have a positive effect.
Unconditional guarantees invite abuse. This risk is significantly lower with precisely defined guarantees. The goodwill costs are also reduced by precisely limiting the amount of compensation. As a result, the positive impact of the increase in sales exceeds the additional goodwill costs of introducing service guarantees.
Fact number 3: Service guarantees should be paid out automatically
Guarantees that are paid out automatically have a very positive effect on business success. Whereas service guarantees that have to be claimed by the customers themselves do not have a positive effect. Especially if the process of obtaining the replacement service is deliberately made more difficult by the company. This happens very often. So why go to the trouble of introducing it this way if you are only going to further annoy customers and lose them for future business? Such a strategy, let's call it the Ryanair strategy here, makes no sense at all in the long term and has a negative effect on your future balance sheet.
Guarantees that are paid out automatically increase customer confidence and have a positive impact on the service provider's image. The additional revenue generated as a result outweighs the costs of the goodwill strategy.
Fact number 4: Service guarantees work better for larger companies!
Larger companies have a better reputation. Therefore, more trust is placed in a service guarantee if it is issued by a well-known company. However, smaller and unknown companies can also achieve very good results if they consistently take the above factors into account.
Conclusion:
Service guarantees make sense and increase confidence in your services. You will be able to sustainably expand your competitive position if you have taken these criteria into account:
- The service guarantee comes into effect automatically and is triggered by defined events.
- The amount and scope of the guarantee are clearly defined.
In this way, you can limit the risk for your service unit and still persuade customers to choose you (again) next time with the promise of an automatic credit. In the medium term, the additional sales will outweigh the costs incurred and have a positive impact on your service unit's margin. After-Sales-division.
However, this only works if you have your processes under control. If you know for a fact that you deliver parts late in 50% of the cases, it would of course be negligent to issue a guarantee of timely delivery. In this case, you would have to clean up your internal mess first before making a big noise externally. Otherwise you will be digging your own grave with a guarantee. - Dr. Simon Tonat
Sources:
Meyer, Gremler, Hogreve (2014): <>, Journal of Service Research, 17(2), pp. 150-163
