Benefits of reducing the risk the customer takes
A service guarantee is a marketing tool used to reduce consumer risk perceptions, signal quality, and differentiate a service offering. By delivering service guarantees companies entitle customers to an easy-to-claim replacement, refund or credit, when service delivery fails.
The 18th century entrepreneur Josiah Wedgewood pioneered the satisfaction-or-money-back guarantee as a marketing strategy on the entire range of his pottery products. He took advantage of his guarantee offer to send his products to rich clientele across Europe unsolicited. The money-back guarantee was also a major tool of early U.S. mail order sales pioneers in the United States such as Richard Sears and Powel Crosley Jr. to win the confidence of consumers.
The benefits of providing service guarantees are:
- Forces companies to focus on customers’ wants and expectations in every aspect of the service.
- Guarantees established clear standards which create a common image of what the company stands for in both customers’ and employees’ minds.
- Motivates employees and managers to focus on quality and customer service due to the costs involved in not doing so.
- Guarantees to help customers to reduce risk in making purchase decisions and to reinforce their long-term loyalty.
- Increases the likelihood for customers to complain, since they expect the front-line staff to be ready with resolutions and appropriate compensations.
To be effective guarantees must be easy to understand and communicate so that customers can have clear awareness of the benefits of the guarantees. In addition, the guarantee must be important to the customers, provide adequate values to offset service failure, easy to take advantage of, and be credible.