The Deceit Behind Warranties
In the upcoming new year, I will celebrate the 40th year of my career in architecture. It has been an incredible ride of learning, yet I have only recently started to fully grasp why many professions, like architecture, refer to their craft as “practicing." There is so much new learning especially now, so many new advancements, so many different ways to accomplish the same basic tasks, so many new tools, that no one in these professions should ever hope to “know” it “all." I say it “all” because I often wonder what that even means. What constitutes or quantifies as “all”?
Then come questions like:
- If someone should happen to know “all”, does that mean that person can see through all the lines and stories that we call marketing?
- Would that mean that person could see through those ads in the media, thus knowing what the “real story” is behind what is actually being said?
- Would one that knows it “all” be susceptible to impulse buying? After all, isn’t the goal of impulse buying to be positioned in just the right place and time to optimize temptation for purchase?
- If one knows “all,” are they impervious to marketing?
Packaging, marketing, and advertising are all about creating a “need” or desire in the heart or mind of a consumer that triggers a decision to purchase. That is a subject that has been discussed in economics classes, business classes, and marketing classes for eons. Does marketing actually create demand, or does it only shift demand?
A point I have always argued. When I was in economics, it was inevitably discussed, and the textbooks said that marketing and advertising “create” demand, thus a consumer then makes a purchase. My point of view, which is almost a scientific approach, sees demand in total as something which really does not expand, but only re-allocates itself. For instance, if one just finishes eating, there is a very low probability that the fast food commercial will spur a great desire to go buy a burger, or whatever. However, that full belly feeling may shift a demand to a bed, sofa, recliner, or exercise equipment purchase.
I have contended that marketing will only shift demand based on the concept of scarcity of resources. No one has unlimited resources, so a person who purchases one product or service, has to sacrifice the purchase of some other product or service.
When someone makes a “major” purchase, the supplier often offers an accompanying “warranty." So, the question becomes, what is a warranty? Who is that warranty really protecting? A discerning purchaser must be able to peer into what a warranty actually is and who is actually being protected. The goal of this article is to help shed some light on what a warranty really is, and who really benefits from the warranty itself.
Caveat emptor basically means “let the buyer beware." It is the principle that the buyer alone is responsible for checking the quality and suitability of a product or service before any purchase is made. This is the basis of a capitalistic economic system. It is not the seller’s responsibility to insure the buyer’s need; only the buyer can be responsible for that decision. In fact, other than a requirement that the seller cannot misrepresent something about the product or service being sold, the seller has little or no responsibility to the buyer. Only through other legal obligations is a seller bound to any responsibilities to the buyer, in its most basic form.
Only through law and court compulsion have any seller’s obligations ever been established towards the buyer. For instance, a seller is required to provide a buyer with a defect-free product under product liability law, within certain limitations. Until those limitations were established, a seller had no obligation to sell anything beyond an “as is” condition. Most newly produced products have some sort of limited guaranty on defects as a result of these laws and court rulings. In fact, some products can still be sold in an “as is” condition, most commonly pre-owned items, e.g. used cars, etc.
At some point, one supplier realized since they had to make a product free of defects, that if they would market this requirement as some sort of “guarantee” that consumers would purchase their product over another seller’s product. This warranty had a side benefit, that it could be used to place limitation on what that liability risk would look like for the seller. Since the law required this anyway, there was really no additional risk to use that as a marketing tool and create a side benefit of limitation of liability, thereby differentiating their product from others on the market, a known key to successful marketing. So, the limited warranty was created.
What Is a Warranty?
When you look up "warranty," some of the definitions you will find will be along the lines of something like this:
- an assurance that the seller of the goods or property being purchased is representing the goods or property truthfully and that the seller will repair or replace any additional defects which are found, or
- a written promise by a company that, if you find a fault in something they have sold you within a certain time, they will repair it or replace it free of charge.
These definitions have some very interesting words that must be noted. See how they say essentially that the seller will repair or replace the product without charge. Think very deeply on those words for a moment before continuing. Now ask yourself, these words place which party at risk, the buyer or seller?
It is very clear that the seller is placed at risk. It is the seller that is assuming the risk of product defects. If not limited, the seller would have unlimited liability. In other words, if there is no limitation of liability, once you buy a car, the manufacturer could be required to replace the car even 10 years after you purchase it. Wow! A buyer would never have to buy another car again! Now that is an extreme case, but it demonstrates a key concept of who a warranty really is written for. A warranty IS NOT written to protect the buyer. In fact, no matter how it is presented, the warranty is written for the exclusive benefit of the seller. It is a tool that places limits on what could potentially be unlimited liability for the seller. Now to introduce the “limited” warranty. All warranties, currently, are limited; they just do not use that ugly word “limited” most of the time.
This news is neither good nor bad, positive nor negative, it is just fact. When we possess knowledge, we possess real power because knowledge wielded properly is very powerful, almost undefeatable. Let me once again quote Britain’s John Ruskin (1819 – 1900), “There is hardly anything in the world that some man cannot make a little worse and sell a little cheaper, and the people who consider price only are this man's lawful prey.” When a seller is focused exclusively or mostly on price, limiting risk is the only path to survival. No one would sell a product that knowingly does not function. Not only would that violate all sorts of laws; it would place the seller into a position that would require much more accountability. Imagine the results if a seller knowingly sold food that was tainted with a poison? This is called product liability and is among the most stringent standards. Look at the aftermath of the tainted Tylenol in 1982. Product packaging changed forever. Manufacturers did not want to be exposed to such potential liability because of their products.
The warranty is just an expression of the limits the manufacturer/seller attempts to hold, and in its basic form the warranty is almost nothing more than a contract instrument of that agreement between the buyer/seller. In my current role, I have had to go back to manufacturers of many types of products while the product is still within the “warranty period,” just to have a claim on the warranty be denied. Sometimes it has even been said by the manufacturer that the product was not installed correctly. I always have a problem with that argument, as the warranty is signed by an agent of the manufacturer at the time of acceptance. This is a direct acknowledgment that the product warranty period has begun and the installation is found to be acceptable to be warranted signed by an agent of the product manufacturer. I have had a couple manufacturers still deny a warranty claims based on improper installment of the material. So, my only recourse is to forbid that material on all of my projects. Those manufacturers have lost out on potentially millions of dollars of work with me, but that is the only means I have to avoid these headaches in the future. If the manufacturer is not willing to stand behind their product, that tells me as a buyer that I do not want to make a long-term investment in their particular product.
If the manufacturer has been around five years, and is offering a 20-year warranty, how do I know that they will be here in the 20 years that I am under their warranty. Remember, the warranty is with that manufacturer only, if the manufacturer is not there to stand behind it, the warranty is invalid. How much clearer can I make that point? The warranty only has value as long as the warranting company exists.
The Warranty Is Only as Good as the Paper It's Written on
I can understand if a product that has issues is not directly inspected by the manufacturer at the time the buyer makes the purchase, but once an agent (direct or indirect) of the manufacturer accepts the installation, I have to revert to the legal principle of agency law. The agent of the manufacturer made a representation that I, as the buyer, have every right to lean and count on. End of discussion.
As I heard in discussions in some of my graduate classes, some executives will play a gambling game, especially when it comes to long-term warranties. That gamble is that even though the life of the material might make it 22 years, they bank that once the buyer gets past, say for instance, the first 10 years, the buyer will not remember to make a claim, and just replace on their own. I am not saying all sellers are this way, but like John Ruskin noted, there are some that do. Should I remind everyone of a particularly large bank that opened unauthorized accounts on behalf of their customers? This is about leadership, the ethics of the organization flow from the top down, as I said in a previous article. I can see how some would do this, it is not like anything will happen if they get caught. Just look at the past, Bernie Madoff was just unlucky, there are many that do not get caught or face little retribution when they are caught, can we ask Wells Fargo about that?
So, who really looks out for the buyer? As I mentioned above, no one, it is called caveat emptor, and is a cornerstone to a capitalistic economic system. I want to emphasize the word “economic”, as in recent decades there has been a push to turn economic systems like these into political systems, but that is another discussion for later. What can a buyer do if the buyer is ignorant about what is being purchased? My suggestion: use an expert.
When you seek an expert’s opinion on a topic, you will get the purest, least tainted information is if the expert will gain nothing by advising you. That may also require some sort of a consultation fee paid by you, the buyer. This is certainly a very commonly held view, one that I might add, is held most commonly held by those that do not trust others very much. You may hear those type of people saying something like “trust but verify,” which I interpret as not holding any trust to begin with. I struggle with that attitude because it is rooted in a concept that people are inherently bad. While I do not hold to the other extreme that people are inherently good, I tend to think that it is more a case of a little of both. I think that most people really want to largely do good most of the time; I think that many succumb to temptation and make bad decisions. If you find a reputable expert, with a reputation earned by providing strong advice over an extended period, you will get good advice anyway. That is what their reputation was built on.
An expert of this type will still have a wide base of selections, and will not hesitate to make a recommendation that they will not directly benefit from. They will use quantifiable data to support their recommendations. They will know if there is independent testing to indicate life and performance expectancies. They may hold licensing, registration, accreditations, certifications, and will perform continuing education and training to stay up on the newest developments.
This expert is not that mechanic you have seen on hidden cameras on the news programs. He or she is, hopefully, a professional who greatly values their personal reputation.
The final thought I want to depart with: knowledge is one of the most powerful tools a person can possess. With that knowledge one can gain visible insights, without knowing “all” or everything. Business survive by making a profit, that is neither good nor bad, only fact. Their complete drive is to make money, and if the business wishes for sustainability that profit motive must be balanced with ethical behavior and reputation and an eye on serving the buyer’s needs. There will always be the unscrupulous who want to make profits at the expense of our entire society. A discerning buyer will be able to tell those unscrupulous sellers from the others and will use that knowledge to avoid them. Look beyond the marketing; check references and other consumer sources to see if claims being made are substantiated.
Never forget, if it sounds to good to be true, you can sure bet it is. The warranty the buyer receives is not written for the buyer; it is there to limit the seller’s liability. Once that is understood, claims can be weighed more appropriately. All warranties are only as good as the organization that authorizes them, and as long as the organization exists.