How to Cut Warranty Costs and Increase Service Profits

After deciding which product to purchase, whether it’s a car, appliance, or large industrial piece of equipment, the decision of how to protect that investment is critical.

There’s the factory warranty, standard warranty, extended warranty, service contracts, and other protective packages to choose from. Each is a product in itself, and at times the value of the warranty can sway the decision to purchase a product.

It’s not surprising then that most manufacturers have a department within their service organization dedicated to the business of warranties and contracts.

According to Aberdeen’s recent Warranty and Contract Management report, not only are warranties and contracts a means to gain a bigger portion of revenue, but these two channels are rapidly becoming a way to drive improved customer-facing gains in satisfaction and retention.

However, the business opportunity has its challenges.

IDC’s Warranty Capabilities Maturity Model report cites that manufacturers spend anywhere from 0.5 percent to 7 percent of product revenue on warranty claims. In the United States alone, this represents approximately $23 billion. The report states that the increasing technological, manufacturing and operational complexities companies face takes a toll on product quality and, subsequently, warranty costs.

Manufacturers are tackling these challenges head on by implementing technology solutions to reduce operational complexities. There is software for automating warranty- and contract-related tasks, and tools for claims processing and tracking, parts returns, supplier recovery processes, and other functions.

These technology investments have reaped benefits; most manufacturers can point to substantial productivity gains and measurable reductions in cost. But as many are now experiencing, there may not be all that much more to squeeze out of their individual warranty and contract management capabilities.

This is why leading manufacturers today are employing Service Lifecycle Management best practices and looking at warranty and contract management through a strategy lens. They are not satisfied with simply optimizing pure operations – instead they have a warranty and contract strategy to improve product performance.

The strategy involves putting a single, comprehensive data source of warranty and product information at the center of the warranty lifecycle. New information on product performance captured throughout the warranty period is stored here.

Regularly analyzing this warranty history helps the manufacturer detect service issues and take corrective actions quickly. It also enables them to proactively anticipate service needs throughout the product’s serviceable life and provide product performance information back to engineering for improvements.

This limits warranty exposure, minimizes warranty costs and ultimately increases service profits and customer value.

Does your service organization have a warranty and contract management strategy in place?

Photo Credit: Trenttsd on Flickr (CC BY 2.0)

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