Extraordinary guarantees: innovative strategies for creating customer loyalty - includes a related article on aspects to consider before launching a guarantee campaign

Home Office Computing, Feb, 1994 by Christopher W.L. Hart

Back in the 1890s, when John Wanamaker first promised a money-back guarantee on every item sold in his department stores, he had no idea what a powerful business tool he'd developed. His aim was to help the public feel protected from the wide assortment of snake-oil salesmen of the day. Today, quality consultant and former Harvard professor Christopher W.L. Hart preaches a similar strategy, transforming that simple promise into a vital business technique called the extraordinary guarantee. This time around, Hart has shown that the guarantee can have a huge impact on service companies---helping to deliver excellence and win customer loyalty. While Wanamaker's guarantee reduced the customer's sense of risk, Hart's extraordinary guarantee is intended for the company. By promising customer satisfaction, the strategy not only helps to pinpoint what it is clients want, but it forces a company to recognize its operational shortcomings. It's a form of self-motivation, causing the business to stand behind its performance.

At first, these sound like tall claims. But with the right guarantee--properly implemented-you'll quickly target systemic problems, build marketing clout, create enormous customer loyalty, and boost your bottom line.

Put Your Company to the Test

Although any business with a guarantee gains a tremendous advantage over its competitors, service companies benefit the most from such an offering--because for them customer satisfaction is the product. Traditionally, measuring satisfaction has been difficult. For example, how would you gauge the defects in a public relations or marketing campaign? Usually, the client's response is the most important yardstick of quality, and there's no better device to measure satisfaction than with a guarantee program. Because of this and the following reasons, it's time to put your company to the test.

First, a strong guarantee will help your business break out of the sea of muddy mediocrity and into the limelight by differentiating itself. Second, it guards against the occasional tendency to take on too many accounts in relation to available resources. And last, it reduces the temptation to overpromise during the sales process.

There is one caveat, however: Certain service businesses should shy away from payout policies, otherwise known as 100 percent money-back guarantees. Ventures that are financially dependent on a few large customers, for instance, could be quickly forced into bankruptcy by such a promise. But there are scores of alternatives that offer the customer something the entrepreneur can control. For example, an airline that constantly pays out on a guarantee because of bad-weather delays might find other innovative ways to keep customers happy, such as providing special snacks, extra drinks, or allowing free use of airline telephones. The best rule of thumb when implementing a guarantee is to carefully weigh your costs against the exceptional benefits.

Picking Your Promise Guarantees come in two forms: explicit and implicit. When a company offers an explicit guarantee, it clearly states what it's promising and what it will do if it fails to keep up its end of the bargain. An implicit guarantee leaves these elements unstated. That's not to say it's weaker; indeed, an implicit guarantee can be the stronger of the two types. But first, the explicit.

Specific guarantees. Fortunately, a guarantee doesn't have to offer complete satisfaction to be extraordinary. Specific guarantees spell out certain elements of your product or service you specifically stand behind. If some other element fails, you are not obligated to compensate the customer for it.

This type of guarantee has the added advantage of highlighting your product's strengths. carpeting manufacturers, for instance, often offer guarantees against staining or fading. And knowing that the world traveler image is one that highly appeals to its customers, Rolex guarantees free servicing of its watches in major international cities.

Although it's difficult to measure the elements of a service since they are often provided under adverse conditions (such as in crowded restaurants or traffic jams), Domino's Pizza built a system that hurdled such details. Some of its franchises used to promise to deliver a pizza within 30 minutes or else the customer ate for free. Federal Express is another example: Its assurance that packages will be delivered by 10:30 a.m. the next business day continues to inspire client confidence.

In fact, the ability of a specific guarantee to call attention to a company's strong points is so beneficial that some businesses actually offer a money-back guarantee but disguise it as a specific. For instance, Florsheim gives purchasers 30 days to return shoes for a full refund if they find them uncomfortable; but discomfort is so subjective that the company is essentially giving an unconditional guarantee phrased so as to stress the company's confidence in the comfort of its product.

Limited-scope guarantees. Some entrepreneurs find it too risky to offer a specific guarantee, especially for business owners whose ability to meet certain criteria is truly at the mercy of uncontrollable events. But there are other ways of limiting risks so that a guarantee can be extraordinary without being foolhardy. One solution is to require the customer to meet preset conditions, thereby taking the burden off the company. The pest control service Prism, for example, is famous for its guarantee to completely eliminate roaches--for good. The catch: Customers have to religiously follow the maintenance routines laid out for them. If they stray from the instructions, the guarantee is void.