Quick Summary
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When organizations think about the benefits of product and service guarantees, they typically think in terms of the impact on their customer.
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Guarantees, however, serve another purpose entirely — they help a business assign a tangible cost to product and service failures, quantifying something that might otherwise be ambiguous.
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As a result, guarantees instill operational discipline because they highlight the cost of doing nothing, thereby compelling companies to take action and address customer experience issues.
I guarantee you’ll find this article eye-opening.
Actually, that’s rather hollow as far as guarantees go. There’s no clear definition of what constitutes “eye-opening,” nor is there specificity around what remedy I’m offering if the article doesn’t meet that bar for you.
Welcome to the fine art of guarantee design. Product and service guarantees can be effective competitive differentiators, provided they’re properly engineered and implemented – otherwise, they can backfire badly and actually cast a negative impression on a brand. (Learn more about “The 6 Keys To Creating Powerful Service Guarantees.”)
And even for those guarantees that are well designed, it turns out their greatest value often lies not in how the promise shapes customer perceptions, but rather, how it imposes operational discipline.
This is an aspect of guarantees that many businesses overlook: For all the customer-facing benefits that they offer, the greatest impact they have is arguably on something that customers never see: the internal financial calculations that help inform executive decisions. That’s because the real power of a guarantee is that it assigns a tangible cost to product and service failures, effectively quantifying a business impact that may otherwise be quite ambiguous.
It’s a perpetual debate within the C-suite: What is a better customer experience going to cost us, and will we see a return on that investment? Business leaders struggle with this question because the financial cost of product or service failures can be difficult to calculate.
“The real power of a guarantee is that it assigns a tangible cost to product and service failures, effectively quantifying a business impact that may otherwise be quite ambiguous.”
If a customer service unit fails to keep caller wait times below five minutes, what’s the ultimate cost to the business? How about if an IT services firm fails to meet its 99.5% system uptime goal? Or if a busy downtown lunch spot fails to get its patrons in and out within the promised hour. How many customers will defect due to these service failures? How much negative word-of-mouth will it spread, adversely impacting new business?
For many types of businesses, such calculations require a lot of guesswork. And, absent well quantified financial impacts, it becomes more likely that the business will let the failures slide, essentially betting that the consequences of poor product or service quality will be manageable (and less costly than any potential corrective action).
Guarantees help eliminate that guesswork. By pinning an exact cost on customer experience failures, a guarantee forces an organization to address sub-par performance, because it now knows more precisely what it stands to lose with each incident of customer disappointment – whether that’s a portion of a monthly B2B service fee, the cost of a compensatory $25 gift card, or the full refund of a product’s sale price.
Guarantees instill operational discipline within an organization: They force companies to precisely measure product and service quality. They compel companies to address the root causes of service failures by highlighting the cost of doing nothing. And they help companies justify operational improvements by providing hard financial data that supports the need for such investments.
And, so, while well designed guarantees have an undeniable marketing benefit, their true power comes from the influence they exert on the innerworkings of a company. Guarantees are catalysts for product and service quality improvement. They are a “burn the boat” no-retreat strategy for fostering organizational commitment around operational excellence. By forcing a company to account for the financial costs of customer experience failures, ignorance of those performance deviations is no longer a rational option. Guarantees help focus an organization’s attention on delivering a desired level of quality, as well as investing in business improvements to enable that performance.
This is why, if you want to cultivate customer trust and keep your team laser-focused on customer experience excellence – a guarantee can be a game-changer.
[A version of this article originally appeared on Forbes.com.]
Jon Picoult is the founder of Watermark Consulting and author of the Wall Street Journal featured book, “From Impressed to Obsessed.” A former Fortune 100 executive, Princeton-trained in Cognitive Science, Jon helps global brands use the psychology of “memory sculpting” to drive ROI and turn customers into lifelong fans. Follow Jon on LinkedIn / Instagram, or subscribe to his monthly eNewsletter.