Are Warranties a Friend or a Foe?
While warranties may help contractors close sales, they often come with challenges
HVAC equipment warranties guarantee the integrity of comfort systems’ performance and contractually ensure manufacturers and installers are responsible for the repair or replacement of defective parts.
Such guarantees offer consumers a sense of security as they consider investing thousands of dollars into their homes or buildings. And, as most contractors will attest, the more comfortable a customer is, the more willing he or she is to sign on the dotted line.
As these agreements can oftentimes be complicated, it’s important that HVAC owners have a firm grasp on the legalese of these contracts in order to fully understand their nuances and ensure the details don’t get lost in the fine print.
And, even the most seasoned contractor can’t overlook the evolution of today’s warranties. Once available as paper-only contracts, warranties are now often completed online, where all parties can track processes and conditions at any time.
For contractors, warranties may help differentiate specific product tiers and, with extended service contracts, improve the value proposition to customers.
When presented appropriately, warranties may add a certain level of attractiveness to the HVAC sales process.
People like knowing what safeguards are in place against future incidents, and companies offering warranties are often viewed as more honest and visible operations. When a customer is shopping around, a warranty can be the key selling point that makes him or her choose you or your product. Ralph Perez, product manager, A.O. Smith Corp., witnesses this on a daily basis.
“Contractors can use warranty tiers to help address concerns of customers who are comparison shopping or are worried about protecting a large investment in new equipment,” he said. “Warranties can also provide consumers a level of assurance about the quality and durability of the equipment.”
It’s not just the satisfaction of knowing the product is protected for years to come, but also viewing the warranty as an added value to the purchase.
“Warranties make a great closing tool,” Perez continued.
One way dealers may capitalize on these guarantees is by framing them as value-added propositions.
“Given the reasonable wholesale cost of our warranties, it’s very easy for dealers to ‘throw them in’ at the last minute as a way to get unsure customers to commit and buy,” said William Newell, national account manager, HVACR & home solutions, AIG Warranty.
In addition to boosting sales, warranties also add value to contractors in the eyes of customers. If contractors tell customers they are guaranteed to come out and fix anything during the timeframe of the warranty, this conveys a sense of reliability. Now, customers not only see warranties as bonuses, but may view contractors’ extended services as bonuses, too.
“Selling warranties adds value to the products and services that contractors offer,” said Evan Meyers, partner, JB & Associates Extended Warranties, Irving, Texas. “At the end of the day, when something fails, and it will, if a customer has a solid warranty plan behind the product, and he or she doesn’t have to pay out of pocket for the repair, he or she will immediately see more value in that product and the contractor than if the expense had to be paid out of pocket. This is especially the case if the failure occurs within the first few years of the product’s life cycle, which is when most failures occur.”
Extended warranty plans tie contractors to customers over time. This allows contractors the option to sell other goods and services to customers over the entirety of their warranty plans as contractors maintain these systems. This is an excellent additional source of revenue and extends the opportunity for sales with customers over time.
Warranties also facilitate direct interactions between manufacturers and their contractor and consumer clients.
Emily Bavaro, director of marketing, tools business segment, Newell Rubbermaid, parent company of hilmor, said, “We’ve seen it all — the good, the bad, and the ugly. We’ve learned a lot about how technicians use our tools when we hear from them with a warranty claim. It’s an opportunity for us to start a dialogue, and, very often, we’re able to turn an unfortunate issue and an unhappy individual into a loyal customer.”
Overall, contractors that offer warranties gain a competitive advantage over their competitors. If one contractor’s warranty is better than another’s, that company is often viewed as more valuable to potential customers who are always looking for the best bang for their buck.
“Contractors now include their warranty programs in advertisements and even run specific campaigns around ‘having the best products with the best warranties,’” Meyers said. “Extended warranties can have a monumental impact on a contracting business if they’re done the right way. We’re talking about increasing the average sale, revenue, and customer retention, which impacts the long-term stability and overall value of the company. I’ve never understood why contractors don’t offer extended service agreements on every job.”
So, what is the average warranty term to ensure manufacturer, contractor, and customer satisfaction? When reviewing with manufacturers, the average amount of time is between five and 10 years. This is a newer trend that is emerging.
“Over the years, we have shifted away from the longer-term warranties and gone toward offering more short-term, renewable options — short-term meaning five years or less,” Newell said. “One of the things we noticed that really resonated with us was the fact that the standard in the automotive industry is a three-year bumper-to-bumper warranty, which caused us to begin offering three-year parts-and-labor HVAC warranties.”
THE OTHER SIDE OF THE COIN
While most view warranties as no-brainers and added sales bonuses, there are some cons to the process. One problem contractors run into is when customers fail to understand the difference between a manufacturer’s warranty and a contractor’s extended service warranty.
“A consumer might mistakenly believe a long manufacturer’s warranty on components will also have a comparable labor warranty from the contractor. It’s important to make sure consumers understand product warranties are only between them and the manufacturer,” said Perez.
Contractors may also feel warranties make their services and products look inferior.
However, a solution to this train of thought is to present warranties as guarantees.
“One thing we hear a lot from dealers is, ‘I’ve spent all this time telling my potential customer about the quality of the product and the work done by my technicians only to have to follow that up by telling them they need a warranty because it might break.’ It’s for this reason that we like to frame warranties as guarantees. This gives a stronger implication of the dealer standing behind his work rather than the implication that the equipment’s bound to fail,” said Newell.
Claiming warranties can be a tedious and costly process for all parties involved. It’s the process itself that sometimes steers people and contractors from buying into warranty plans. To avoid lengthy warranty processes, companies are considering shorter coverage plans and hosting more documents digitally online or in the cloud.
“We often run into distributors that don’t like being the middle men between technicians and hilmor,” Bavaro said. “It ties up our staff, their inventory, and can be costly on freight. It was that feedback that led to the development of the new two-year, lifetime-limited warranty on hilmor’s new vacuum pumps. After registering the product on our website, technicians can contact us directly for replacement parts or a replacement pump. This speeds up the exchange and allows us to hear firsthand from our users.”
While warranties are attractive to many in the sales process, they can be quite expensive.
“The only con of selling warranties that I have consistently come across is that adding a warranty makes the contractor come in too high on price,” Meyers said. “In these situations, it’s often best to look at your margin on equipment to see if you can find some wiggle room there. Worst-case scenario, you include the plan at cost to lock that homeowner into your service or simply back the warranty out of that particular job.”
While opinions vary on the concept of warranties, the key to their success seems to be in keeping warranties easy for customers to understand and for an allotted amount of time that is fair to all parties involved. When done properly, warranties allow contractors to sell both their products and their technicians’ work.
“Being able to reassure potential customers that you will stand behind your work and not leave them high and dry in the event of a failure goes a long way,” said Newell.
Publication date: 3/6/2017