If a company is marketing commercial products or selling to the customer, warranty provides a competitive edge in the competitive market, effective warranty planning can ensure success, but lack of attention to cost analyses can spell disaster, this article will introduce the basics of warranty and more information.
The cost accounting standard 15 for selling and distribution overhead issued by the institute of cost accountants of India specifically mention that the warranty cost incurred for any product shall be considered as selling and distribution cost.
Selling and distribution cost is also known as marketing cost as it is nothing but cost incurred when product is ready to dispatch and reaches to the ultimate consumer.
There may be two types of warranty:
· Express Warranty –Where all the terms & Conditions are provided in writing by the seller.
· Implied warranty – Where seller is automatically responsible for performance of the product.
Marketing cost is the back bone of any product because the idea to incur such cost is to create or managing the market of that product, marketing cost also plays a vital role to connect the manufacturer and ultimate consumer and spread awareness of the product in the society.
Generally three types of warranty are very common among the consumers.
· Ordinary Free Replacement - if a product fails to perform before end of the warranty period, it will be replaced or repaired at free of cost to the customer, the period of the warranty for the repaired product is equal to the remaining period of the original warranty.
· Unlimited Free Replacement - if a product fails to perform before end of the warranty period, it will be replaced or repaired at free of cost to the customer, the period of the warranty for the repaired product is equal to the period of the original warranty, such warranty is used for small types of item or we can say product having small period of useful life.
· Pro-rata - if an items fails before the end of the warranty period , it is replaced at a cost depend upon the age of the item at the time of failure, such warranty is also known as partial warranty where only portion of the initial cost is covered, it is usually used for non repairable items.
With the understanding of above examples, warranty is one of the major contributors to make the product risk free for the consumers, the following example can give us a strong believe that marketing is one of the important marketing tool.
Warranty played an important role in the automobile sector, the warranty for automobiles was 90 days in the 1930s and this has steadily increased over the years. In 2002 Suzuki offered a 7 year, on the power train and it was well appreciated in the report of New Year Times and commented that it was the best auto warranty.
Warranty worked as two marketing tools:
Promotional – as promotional tool, warranties serves to promote the reliability and quality of the product.
Protection - as protection tool, warranties provide assurance to consumers against defective products, this assurance reduces the risks associated with purchase of the product.
Creation and managing the market of the product depend upon few variables like.
From the side of manufacturer – price, promotion, warranty, etc.
From the side of consumer - product features, risk, brand reputation, etc.
In today’s ultra competitive market, a manufacturer finds new ways to earn buyer confidence at this moment warranty is always help to attract the consumer for their products.
Now we have to understand the behavior of the consumer when they go to purchase the product and it can be categorized in three stages.
· Pre – Purchase – at this stage consumer recognize of the need for new product and search information for the product recognized and compare with the alternate option.
· Purchase – at this stage consumer takes the decision to purchase the product.
· Post – purchase - at this stage consumer use, evaluate the product and takes further action.
With the understanding of above behavior of the consumer, warranty helps to identify the product with maximum satisfaction and reduced financial risk.
Correlation between market and warranty
· Choice of the product-period of warranty of any product helps to feel at risk free situation and provides a indemnified situation so the maximum period of warranty attract the consumer to create market for such product.
· Brand- when a manufacturer provides the warrant for any product, it means there is indication of positive correlation between warranty and reliability and the moment where consumer starts relaying on the performance of the product it builds the brand image of the product and create the market.
· Reputation- when manufacturer build up the brand image of their product means they are representing the whole company and they are successful to make their reputation in the market and maintaining the same is required confidence of consumers for their products and warranty plays an important role.
Sales and warranty
Total sales over life cycle of a product depend on a number of marketing tools.
Major Tools
· Price
· Warranty
Other Tools
· Advertisement
· Quality of the product
· Reputation of manufacturer
In the competitive market customer always in the uncertainty for performance of the product in its useful life, at this moment warranty of the product plays a very important role to reach the customer in the indemnified situation.
Regards
CMA Manish Kandpal
Rakesh Singh & Co.
CAclubindia
