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Tug of Warranty: It’s Shouldn’t Be This Hard

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Warranty. It’s such a simple word that means a lot of things to a lot of different people. To customers, a warranty means peace of mind
that if something goes wrong, their system will get fixed at no cost. To manufacturers, a warranty means a guarantee on their product that if by some small chance something goes wrong, the unit will get fixed at a minimal cost to the customer. To contractors, a warranty means so much more. There are the good experiences where warranties meet the expectations of the customers and there are no issues. And then there are the bad experiences where they end up losing money by fixing the issue at a cost to them. The question is: why are warranties so confusing and frustrating; and why don’t they always meet the expectations of everyone involved in the situation?

The Warranty Struggle
According to contractors, the reason for so much confusion and frustration surrounding warranties comes from three sources: unreasonable expectations by customers, failure by some contractors to properly install the systems, and the decreased profitability for contractors performing warranty work.

Customer Expectations. When customers’ expectations about what a warranty entails are so vastly different from what the truth is, there is no possibility that there won’t be trouble for contractors.

“The biggest problem with warranties is the customer’s perceived value of the system they purchased and the cost to have it installed,” says Steve Schmidt, president of Frederick Air in Frederick, MD. “The cost of the systems and installation has risen significantly over the past few years, but customers don’t see anything new with the unit. They are looking for the bells and whistles that justify the cost increase and because they don’t see it, they expect to get the value in the warranty.”

“What homeowners don’t understand is that their heating and cooling system is more like a car than a refrigerator,” says Matt Todd, sales and engineering manager of Entek Corporation in Longview, WA. “Their system needs maintenance, they can’t just have it installed and then let it run until it dies, because it is going to die a lot sooner if they do that. But they don’t want to think about having to do maintenance and when their systems fail, they just want them fixed.”

David Burgess, Service Manager for Roscoe Brown, Inc., in Murfreesboro, TN, completely agrees. “Homeowners seldom understand how our warranty process works and we have to explain it almost every time a warranty repair is performed,” he says. “Too often consumers don’t take time to read their warranty coverage, which causes all the questions.”

Poor Installations. Contractors become frustrated with poor installations, because they are often called to do warranty work on systems they didn’t install, which costs them money.

“We come across poor installation jobs all the time that someone’s cousin or uncle did or they just called the cheapest guy to install the system,” says Todd. “They call us, because they can’t get ahold of the guy who installed it or they have no clue who it was anymore. Then, when we come out, the customer expects everything to be covered, because they have the warranty sticker that came on the unit. Of course we do the work, but it hurts us, because we didn’t install it.”

Schmidt admits that there are issues with unscrupulous contractors and the warranty process. However, he says that is has nothing to do with manufacturers denying claims, because of improper installations. “Improper installations are a problem, because they are done by contractors who don’t care about the customer after making the money on the initial sale and installation,” he says. “Customers become frustrated when they either don’t get a call back from the installing contractor or are told that it will be weeks before they get any help. They then call us, and we do the warranty work and lose the money on it. But despite what I hear all the time, the issue isn’t with the manufacturer. I’ve never had a manufacturer deny a claim, because the system wasn’t installed properly.”

Todd also says he’s never had a claim flat out denied due to an improper installation, but he has had manufacturers question multiple claims on the same serial number. “Sometimes there have been two or three warranty claims made on a unit before we have even touched it,” he says. “At that point, the manufacturer wants to start a conversation to find out what is going on and why there are having to send out the same part multiple times. They don’t straight out deny the claim, but they have to protect themselves, too, because they don’t want to have to keep spending that money to send out the same part.”

Decreased Profitability. When a contractor performs warranty work, they aren’t able to markup the parts, which means they are losing money. While contractors admit that warranties are needed to ensure that if there is a system failure, they don’t like that the revenue stream of the parts markup is taken away.

On top of that the increased length of warranties has made the parts markup issue even worse.

“There used to be a one-year parts warranty and that wasn’t too bad,” says Schmidt. “Then it jumped to five years, and now 10 years. That’s 10 years we can’t markup the parts and make money. And since the parts markup is a staple of my company’s profitability, I had to come up with a way to recoup that loss.”

“Extended parts warranties are usually a negative for us contractors, due to the lost revenue from parts sales, but it increases customer satisfaction when they don’t have to pay full price for repairs,” adds Burgess. “It’s really a win-lose situation. We want our customers happy, but the decrease in revenue doesn’t benefit our business at all.”

Schmidt’s solution was to charge his customers a warranty processing fee. “Forward thinking contractors are doing something like this, because it evens out that lost revenue,” he says. “Sometimes customers don’t understand, and we will waive it in some cases, but it really has helped with the gap. The truth is, we lose the markup on parts with warranties and it creates more work, we have to pay for it somehow.”

How Do We Fix It?
Since everyone agrees that warranties make things better when they work as intended, how do we get there?

Todd says that to fix the warranty issues, manufacturers have to step up and require more from homeowners. “Manufacturers need to put in place a requirement for homeowners to maintain their systems in order for their warranty to be honored,” he says. “Even if the requirement is to have a professionally certified or accredited company come out once a year to perform maintenance, that would be better than letting the systems go for years without maintenance and the failures to be worse than they need to be.”

Todd admits that customers may not be happy to have a maintenance requirement tied to their heating and cooling system, but it would truly benefit them in the long run.

Schmidt stands firm when he says that communication is the key to eliminating most of the problems associated with warranties.

“When we as contractors don’t explain the warranties that we are selling and how they truly work to our customers, we leave the door up to them making assumptions,” Schmidt says. “When the customer makes assumptions and then we do something that doesn’t line up with what they think, they get angry.”

So, to help educate his customers, Schmidt and his team created a very detailed brochure that explains the warranty they are selling, what it entails, and what the customer will be responsible for paying. The Frederick Air team did this, because the brochure on the warranty that was provided by the manufacturer didn’t clearly cover things that customers often get confused about and cause problems.

“We had to put things in it that we really don’t want to have to say to the customer, so there is total transparency,” Schmidt says. “Customers get really frustrated when they think they are going to get something for free and then get charged for labor, because only parts are covered. We need to make sure that we are clearly setting expectations, so we don’t come off as the bad guy in the situation.”

Burgess’ company has a similar solution: educate the customers about warranties and what they really include. “Our policy is to explain all of the costs before making any repairs so the customer can make an informed decision” he says. “Often this includes explaining how the parts warranty process works which involves: purchasing parts, pickup and delivery, usually a second trip to complete a repair, filing the appropriate warranty claim, returning the part if the manufacturer requires it, and lastly waiting on the vendor/manufacturer to issue a credit for the part. The customer does not realize the process is very time consuming. As a service provider we have to price repairs appropriately to make a reasonable profit. This is where standardized (flat rate) pricing makes a difference.”

Todd also believes that education is a key component to correcting the issues, but he sees it more on educating the customers on the need for maintenance. “Unfortunately, the only time we really get the opportunity to educate the customer on the need for maintenance is when something has already gone wrong, otherwise they are simply not interested in it,” he admits. “When we get the opportunity though, we need to take it and use simple speak to make sure that our customers understand that we can lessen these occurrences by taking care of the system regularly.”

So, at the end of it all, this tug of war that seems to always be going on doesn’t really need to be this hard. As our experts say, if the manufacturers and contractors work together then there will be less confusion. If this happens, the warranty tug of war may just end, because at the end warranties really aren’t all that bad.

“When the warranty process runs smoothly everyone wins,” says Schmidt. “Customers are happy when we tell them we are going to do something, and we actually do it. It shines a good light on all of us and it helps the image of our industry.”

Posted In: ACCA Now, Customer Service, Management, Money, Opinion, Sales & Marketing

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