I have two questions pertaining to a case study described below. The questions are:
1. What recommendation would you make as to how to label the warranty in marketing campaigns? Why?
2. In making the decision, how could you benefit from the various group decision-making techniques?
Your are a marketing manager at GM. Your supervisor asks you to consult on a marketing strategy. GM plans to offer an industry-leading warranty on several cars that it sells in Europe. The warranty would apply to everything (excluding accidental damage) prior to the 100,000 mile mark. Some at GM want to call the warranty a “lifetime warranty” despite the mileage limit because there is no time limit. Research suggests that for the average driver in Britain, the 100,000 mile limit would last twelve years, and 95% of car owners in Britain stop using a car after less than ten years. Most owners will never use their cars long enough to exceed the warranty.
Your supervisor wants you to make the decision: should GM market the warranty as “lifetime”?
John Reed, “GM Woos Europe with ‘Lifetime Warranty,’” Financial Times (August 5, 2010), accessed October 10, 2010, from www.ft.com/cms/s/0/e4caae36-a0b7-11df-badd-00144feabdc0.html.
The first thing I would need to do if I were confronted with this issue is find out what the law says about truth in advertising. I would need to find out whether we could legally call our warranty “lifetime” if it actually had a mileage limitation. Clearly, if there were legal implications to what we call our warranty, that would have a major effect on our decision.
Absent any legal implications, I would argue that we should not call our warranty a lifetime warranty. I think that it would make us look too dishonest. Instead, I think I would try to say something like “guaranteed for as long as you are likely to own your car.”
I believe that most people base their decision on what car to buy on whether they trust the company that makes the car. They have certain impressions of most carmakers and they want to buy from a company that makes them feel confident. They worry that they will be taken in by the car company and they do not want to feel that way.
Because of this, I think that we need to be scrupulously honest in our advertising. If we say that the car has a “lifetime warranty,” people will expect that it will be covered as long as they own the car. If we say that we have a lifetime warranty and then follow that up with a bunch of legalese that explains why our lifetime warranty does not actually last as long as they own the car, they will see us as a fundamentally dishonest company. They will think of us in the way they often think of lawyers, thinking that we are likely to engage in sophistry to make a profit. This might increase our sales in the short term, but it seems like a bad idea in the long term.
Of course, this is only my opinion and others might have better ideas. In particular, they might have better ways of labeling than I came up with. In that case, I would think that we should engage in brainstorming as a way of coming up with the best possible ideas for how to label our warranty.
There are two underlying issues in this question, one based on ethics and one based on maximizing sales. Although in the past many businesses considered the two issues opposed to one another, recent management theory has come to the realization that corporate ethics and social responsibility are essential elements of branding, which in turn affects market share. As you make this decision, you should also consider the possibility of other forms of phrasing such as "limited lifetime warranty" and "100,000-mile warranty," both of which may be more accurate than an unadorned "lifetime warranty."
The first issue you encounter in this case is one of definition: what does a "lifetime" warranty actually mean? This is where group decision making can be especially important. You want to bring in experts from your company's legal department to see precisely what the legal definition of "lifetime warranty" is within the regions in which you intend to sell the cars. You also want them to research any past legal issues involving "lifetime warranties." You also want to investigate any current European Union legislation or committees that might be addressing this issue, as you don't want to invest in developing this campaign only to find out that a new regulatory environment might affect it.
The second issue you encounter is estimating costs. For this issue you would want to bring in the engineering and accounting departments. How likely are owners to actually use the warranty? What parts are most likely to fail? What would be the cost of this warranty to the company over the projected life cycles of the cars? Would the projected increase in sales actually cover the costs of fulfilling the warranties?
The third issue has to do with your reputation and the power of social media. What would happen to the reputation of your brand if someone drove one of your cars for 100,005 miles and an expensive part requiring several thousand dollars (or euros) worth of repairs broke down and was not covered by your "lifetime" warranty? If this went viral on social media, you would be incurring a major risk to your reputation. In this case, the issue is not just one of sales but one of ethics and expectations. Even though the term "lifetime warranty" may not be legally binding, part of good corporate citizenship and building a trusted brand involves going beyond the legal requirements.