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The Power of Unconditional Service Guarantees
by Seamus Parfrey

In 1988 Harvard Business Review published an article by Professor C.W.L. Hart which explained why a service guarantee can help an organisation institutionalise superlative performance.

A guarantee is a powerful tool for businesses for marketing service quality and for achieving it for the following five reasons:

1.      Focus on customers

A guarantee forces you to focus on customers and to identify your target customers’ expectations about the elements of the service and the importance they attach to each. If you do not know of the customers’ needs you may very well guarantee the wrong things.

2.      Clear standards

A specific, unambiguous service guarantee sets standards for your business. It tells employees what the business stands for and it forces the business to define each employee’s role and responsibilities in delivering the service. This clarity and sense of identity have the added advantages of creating employee team spirit and pride.

A payout that creates a financial pain when errors occur is a powerful statement, to employees and customers alike, that management demands customer satisfaction. A significant payout ensures that management and staff will take the service guarantee seriously; it provides a strong incentive to take every step necessary to deliver. A business that must bear the full cost of mistakes has ample incentive to figure out how to prevent them from happening.

3.      Generates feedback

A guarantee creates the goal; it defines what you must do to satisfy your customers. Next, you need to know when you go wrong. A guarantee forces you to create a system for discovering errors because they are opportunities to learn. A guarantee gives consumers an incentive and vehicle for bringing their grievances to management’s attention.

4.      Understanding failure

A guarantee forces you to understand why you fail. In developing a guarantee, managers must ask questions such as:

What failure points exist in the system?

If failure points can be identified, can their origins be traced and overcome?

You must understand your operations capability and the factors limiting that capability. If you do not you will tend to blame staff or customers but not the service delivery process which may be failing.

5.      Marketing Advantage

A guarantee builds marketing muscle. It encourages consumers to buy a service by reducing the risk of the purchase decision and it generates more sales to existing customers by enhancing loyalty.

Keeping most of your customers and getting positive word of mouth, are particularly important for service companies. The net present value of sales foregone from lost customers – in other words, the cost of customer dissatisfaction – is enormous. Many service companies’ biggest competitors are themselves. They frequently spend huge amounts of money to attract new customers without ever figuring out how to provide the consistent service they promise to their existing customers. If customers are not satisfied, the marketing money has been poured down the drain and may even engender further ill will.

Some business owners believe that promising error-free services is a crazy idea. Not only is it not crazy but committing to error-free service can help force a company to provide it. A strong service guarantee that puts the customer first doesn’t necessarily lead to chaos and failure. If designed and implemented properly, it enables you to get control over your business – with clear goals and an information network that gives you the information you need to improve performance. A service guarantee is not always possible but it is a boon to performance and profits and can be a vehicle to market dominance.


Good service guarantee

A good service guarantee has the following five elements:

1.   Unconditional

The best service guarantee promises customer satisfaction unconditionally without exceptions. A service guarantee loses power in direct proportion to the number of conditions it contains. Ideally there shouldn’t be any conditions; a customer is either satisfied or not.

If a company cannot guarantee all elements of its service unconditionally, it should unconditionally guarantee the elements that it can control.

2.   Easy to understand and communicate

A guarantee should be written in simple, concise language that pinpoints the promise. Customers then know precisely what they can expect and employees know precisely what is expected of them. In a restaurant a “five-minute” lunch service, rather than “prompt” service, creates clear expectations.

3.   Meaningful

A good service guarantee is meaningful in two respects.

First, it guarantees those aspects of your service that are important to your customers. It may be speedy delivery. A restaurant may promise a 15-minute lunch service or you get a free meal when many customers are in a hurry to get back to the office but not at dinner when fast service is not considered a priority to most customers.

Second, a good guarantee is meaningful financially; it calls for a significant payout when the promise is not kept. The payout depends on factors like the cost of the service, the seriousness of the failure, and customer’s perception of what’s fair. A money-back payout should be large enough to give customers an incentive to invoke a guarantee if dissatisfied. The adage “let the punishment fit the crime” is an appropriate guide.

4.   Easy to invoke

A customer who is already dissatisfied should not have to jump through hoops to invoke a guarantee; the dissatisfaction is only exacerbated when the customer has to go through a difficult tedious process to trigger the guarantee.

A business should encourage unhappy customers to invoke its guarantee, not put up road blocks to keep them from speaking up.

5.   Easy to collect

Customers shouldn’t have to work hard to collect a payout. The procedure should be easy and, equally important, quick – on the spot, if possible.

Your guarantee should not promise something your customers already expect; don’t shroud a guarantee in so many conditions that it loses its point; and don’t offer a guarantee so mild that it is never invoked. A guarantee that is essentially risk free to the business will be of little or no value to your customers or to your business.

Organisations that figure out how to offer and deliver guaranteed, breakthrough service will have tapped into a powerful source of competitive advantage. Doing so is no mean feat, of course, which is precisely why the opportunity to build a competitive advantage exists. Though the task is difficult, it is clearly not impossible, and the service guarantee can play a fundamental role in the process.

Further reading: Work On Your Business Not In It!

Please call Seamus Parfrey today on 021-4310266 if you need further information on unconditional service guarantees or a free consultation.

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