The value of warranties as a marketing tool
In a three-minute read, I am to outline why an extended used car warranty as part of your marketing can add real value to a dealer’s business and I’m going to back that with academic insight.
I hope it provides you with some fresh food for thought!
When it comes to buying a used car, reliability is a crucial feature. According to a new What Car? Motoring Panel survey, nearly two-thirds of car buyers rank reliability as the most important quality when buying a new or used car.
In their pre-purchase car buying journey, car buyers can access reliability survey information and data when assessing a car, but some want that extra reassurance in a good warranty. It has led to OEMs offering ever-longer extended warranties and featuring them in their marketing prominently. When a used car dealer is promoting their cars, they are, in essence, marketing both their stock and themselves. Car buyers want both to be reliable. A quality used car warranty can help to demonstrate both are to be trusted.
As a hard data point, 32% of car buyers look for a good warranty as part of their purchase journey. It is a sizeable number proportion, but I believe there is more to be considered in supporting the value that an increased focus on the extended warranty can create;
- A long-term used car warranty is a massive statement of confidence by a dealer;
- In uncertain economic times, a good warranty provides invaluable reassurance;
- It moves the whole dialogue away from price and towards quality service;
- It can enhance a dealer’s reputation and retention.
Not all warranties are the same and some are, in essence, underwritten by dealers. There is nothing wrong with a dealer warranty, but I believe dealers need to be ready to provide a non-dealer option for the increasing number of distance buyers, reassurance for the buyers, potential hassle avoided for the dealer.
The academic view of extended warranties
Yes, there is an academic on this very subject; ‘The Importance of Warranties Marketing Essay’ 14 pages condensing a series of academic studies and wisdom. As a heads-up, it is not restricted to the motor industry, but I believe some of these verbatim extracts make for interesting reading;
- Consumers consider warranty as signals of product quality because they know that offering warranties are expensive for firms. Longer warranties build consumers’ utility and increase the likelihood of the product being chosen. Choi ( 2006)
- Boulding and Kirmani (1993) the warranty can, in effect, serve as a telling signal of the qualities of products.
- Warranty and product quality can be thought of as consistent with the use of warranty as a basis of judging the quality of a product when consumer moral hazard is present.
- When products are sold with warranties, a linkage is created between buyer and seller. Because the seller’s future profitability is dependent upon the behaviour of future consumers. Bigelow, Cooper, & Ross(1993)
Some of the language is inevitably academic, but I hope the sentiment is clear; warranties enhance buyer confidence and enhance the seller’s reputations and customer retention.
Five takeaway tips
- Select a good extended warranty, checking its scope from the outset;
- Ensure the car on offer is covered by the warranty T&Cs
- Ensure the scope is always very clearly explained to the car buyer, don’t just give them a handover pack; those T&Cs can cause problems later on if people think wear and tear is covered for example;
- If you offer your own warranty, consider adding a third party option for those distance sales;
- Make a long-term warranty an integral part of your marketing – long-term is at least one year and do so in words and images.
Joff Suter, Souther Zone Sales Director
