Why free 🆓 long-term warranties ☂️ are a bad idea - Part 1 (6 min read)

Part one provides the evidence that long-term warranties simply don’t provide the value to customers that most companies think it does.

Not Every Customer Cares About Warranty☂️

A few years back Jeff Esparrago, Ingersoll Rand’s North America Sales Director suggested on his LinkedIn article that there were four reasons why capital equipment is purchased.1 Regardless of the specific reason, it all boils down to the fact that the capital equipment investment was needed to support the customer’s operation. This is true whether it is a medical device that helps a doctor diagnose or treat a patient (service) or a piece of industrial equipment that plays a role in the production of a physical good (product).

While many factors may play a role in which product, and from which company the customer will buy, the cost of the service hardly ever even makes the top-10 list. In this article, I will present the evidence that supports the theory that giving away long-term warranties in hopes of selling a product is a truly flawed strategy.

Warranties can be Irrelevant😴

A long-term warranty may simply not apply to the customer. How so you may ask? Well, capital equipment warranties come with terms and limitations. The ones below are more common than you may think!

🌎 Product Location - I can provide an example of a medical device that went into a navy hospital ship, which by virtue of going into international waters voided the warranty as soon as the ship sailed, literally. In many cases, the product cannot even be moved without voiding the warranty, even from within a facility.

🛠 Permission to Service - Another common situation in the medical device space is the use of biomedical (biomed) engineers or third-party service providers to reduce costs or for faster issue resolution. Unless the work is done with the consent of the manufacturer, the terms of sale will likely provide grounds to void the warranty.

📃 Non- Transferable - Many warranties are also non-transferable, thus voided anytime an organization buys a product for another organization.

Low or NO Perceived Value 💵

Warranties rarely ever cover anything more than system failures, and even that, often comes with some limitations. If the product is very reliable, the perceived value of that warranty to the customer is essentially zero, and will do absolutely nothing to incentivize the purchase of the product.

Unfortunately instrument manufacturers often neglect value-added services, which ensure the product is deployed correctly and is used efficiently. For example, training the staff to operate the system can be very valuable, especially to a first-time customer, or for one with high employee turnover. Perhaps offering a consulting visit to help the customer identify the best location for the product, or the best way to connect it to the customer’s network, or best practices for interpreting system data. These services don’t have to be free to support the sale of the product, they just need to be available to the customer.

The Product Doesn’t Match Customers’ Needs

Offering multiple years of free warranty will not make up for the product’s inability to do what the customer wants it to do. I can share an example of a time when a sales colleague offered a 5-year free warranty, and still lost the deal. That’s because our product simply couldn’t do something that the customer needed and the competitor’s product could.

I’ve worked with some incredible sale people who would actually turn a competitor’s long-term warranty against them by asking the customers why they thought the competitor had to offer such an extensive warranty. This simple question triggered customers to question if the competitor’s product would break all the time, or if their product had some shortcomings which they weren’t aware of. And if the first question wasn’t enough, they often sealed the deal by asking what the competitor’s warranty really covered. That’s an easy win as 99 out of 100 customers have no clue what the warranty will truly cover. Can you imagine the mine field the competitor’s sales person would have to navigate next time they talked to the customer?

The Hidden Costs 💸

Warranties, especially the long-term kind are fraught with limitations that make customers’ experiences often more negative than positive. Most customers know that they will likely have to pay for additional services, which means finding a budget and dealing with the hassles of purchase orders. In nearly two decades working with capital equipment, I’ve seen long-term product warranties that don’t cover some or even any spare part or labor. The cost of shipping an instrument to the factory for repair is typically on the customer as well. In many cases, there is even an additional charge for a manufacturer-approved container, or the manufacturer will refuse to repair the product altogether. In some extreme cases, warranties don’t even cover repairs. If the product is being used outside or beyond its intended use, chances are the warranty will be voided by the manufacturer.

Funding & Budgets 💰

This may come as a shock to sales people and even some product managers, but the source of funding may make a warranty, with its limited features, not attractive to customers. I’ve talked to a number of customers who affirmed that by virtue of funds being available via grants, or operational budgets, they would have preferred to buy a service plan to get more and better support. Ultimately, customers know that they would never get preventive maintenance, remote services, applications support, or other value-added services with the warranty.

🚦 Part One Conclusion

Although many customers are unaware of the many factors we’ve presented above, it is not uncommon for customers to approach product warranty with at least a certain degree of caution or skepticism. A Customer that’s denied warranty repair because of any of these factors, will view the warranty as worthless, since what seemed to be promised was never delivered. Ask yourself, how likely is that customer to buy your next product?

Cited Sources:

1 Four Reasons Why Capital Equipment Is Purchased, Jeff Esparrago, https://www.linkedin.com/pulse/four-reasons-why-capital-equipment-purchased-jeffrey-esparrago

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