Should your business offer guarantees?

By: Paul D Foster

Date: 20 March 2012

When a potential customer considers purchasing from your business, are there a number of risks to completing the purchase? Will the product or service solve the problem they have? Will it meet the needs or wants of the customer? Will the benefits outweigh the costs?
When you provide a guarantee, you remove the risks to the potential purchaser and make it easier for them to buy from you.

It is reasonable to assume that if you reduce the risks and make it easy to buy, more of your potential customers will convert to actual customers and make the purchase. This is a good thing.

Here are five tips to developing a great guarantee:

1 Position it clearly and boldly to potential customers

The worst guarantee is one that customers don’t know about. This may sound ridiculous, but as a small-business advisor I often discover businesses that have a guarantee but didn’t tell their customers about it at the time of purchase. This means the guarantee was not needed for the purchase. Some of those who didn’t buy might have thought it was too risky to make the purchase without a guarantee – even though they would have got one.

2 The stronger and bolder the guarantee – the better

A watered-down guarantee doesn’t work. Make it big and bold. The idea is to get more customers to buy confidently, so big and bold gets more attention in the marketplace. I often see big resistance to make it bold. This is typically because of the fear the market will take advantage of your guarantee. The reality is that a very small percentage probably will, but the percentage is typically less than 1 per cent. The profits from the other 99 per cent of new customers will be more than the cost of dealing with the unsatisfied 1 per cent.

3 Be specific how you define the “claim”

As the business that is developing the guarantee, you get to determine the rules for a claim. While the guarantee needs to have some meat and be easy to use, you control the details. Make it ‘if this, then that’. For example, ‘If this tree doesn’t live for one year from purchase for any reason, we will replace it for no charge.’ In this example, the claim was not cash but a free replacement, which costs less to the business that a full refund.

4 Test it first

If you are worried about how the guarantee will work and if anyone will abuse it, test it in a controlled manner. You can offer it to a limited group of potential customers to see how it works, then you can tweak it based on how the test works out.

5 Research guarantees in other industries

The design of a great guarantee does not have to come from your industry. There is no need to re-invent the wheel. If you just focus on the current purchase decisions you may be making yourself, you can experience how and if a guarantee affects your risks of making a purchase.

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