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How to Build Sales With Extended Benefits
by Michel Fortin
An often exploited area that can become profitable for many businesses is the "extended" warranty. Extended warranties are subtle forms of insurance policies that guarantee a product or service's performance, especially after an initial period of time. While the guarantee promises benefits, the warranty promises that the enjoyment of those benefits will continue.
In other words, an extended warranty is like a guarantee's guarantee. In regards to a product, for instance, the warranty promises that it will perform the way it is supposed to for a very specific period of time. If your product comes with a guarantee, then consider selling an extended warranty that ensures its continuation. But if your product is guaranteed indefinitely or can not be guaranteed for whatever reason, consider a warranty that may take the form of future upgrades, additional benefits, membership programs, points clubs, or support services.
For example, if you sell computers you can also offer a buy-back plan. For an additional fee, customers obtain the ability to choose to trade in their systems for a better model within a year following their initial purchase. The plan, which may appear in the form of a certificate or letter, promises them a complete refund that's applied towards their upgrade. If they choose to exercise their option, they only pay the difference when they upgrade to a later model.
The Silent Profit Center
As for services, the extended warranty is a little different since services are intangible, do not break down, need repair, or depreciate in value. Therefore, the warranty can take the shape of memberships, preferred customer programs, prepaid retainers, premium services, customer service packages, upgrades, and so on. In short, warranties are service agreements.
For example, if you're a consultant you can offer prepaid retainer packages that include several hours of consulting or special on-call priority privileges, all at a discounted rate. On the other hand, if you offer repetitive services such as a hairstylist or a chiropractor, you can offer a number of prepaid visits at a discount. And if your cashflow is particular low during a specific month or season, you can arrange your packages so that they renew at that point in time.
In addition, these programs are often more advantageous to the client above the obvious price incentive, since they include less billing, more convenience, preferred service, faster delivery, and others. A Robert Ringer, author of "Million Dollar Habits," once wrote: "People usually tend to focus on the three 'gets'. They want to get in, get it done, and get out!" That's why these programs, often referred to as "preferred client clubs," are quite popular.
Clubs also have a mystique and a greater sense of value about them. The perception is such that members feel part of an elite group to which higher priority or greater attention is given. As American Express says, "membership has its privileges." However, keep in mind that the savings factor in such programs is more often than not the greatest motivator.
Join the Club
Highly consumable products generally translate into repeat sales. Therefore, an extended warranty in this case would be a repeat customer program. This could involve a flat discount rate on all purchases made at a particular store during a certain timeframe. What this program also does is to preemptively reduce the possible loss of a client to a competitor.
Bookstores sell avid reader membership programs that offer a fixed discount rate on all subsequent books purchased during the time that the program is in force. These programs can range from one month to a full year. The wholesaler Costco Price Club is another great example where an annual membership fee is charged but members enjoy wholesale prices.
Nevertheless, while extended warranties are in and of themselves potential profit centers, they are also wonderful positioning tools. By and large, they help to increase the core business because people love options and the feeling that they are being taken care. They also reduce the element of risk in the buying process. People want to avoid pain, and that includes the potential loss of a benefit. Consequently, help them feel more secure with the knowledge that they will continue to enjoy your product or service. Sell them an extended warranty.
[This article has been condensed in great part from "101 Power Positioning Tips For Turning Your Business Into a Powerful Magnet." See http://SuccessDoctor.com/power.htm.]
About the Author
Michel Fortin is a consultant dedicated to helping businesses turn into powerful magnets. Visit http://SuccessDoctor.com to receive a free copy of his book, "The 10 Commandments of Power Positioning." He is also the editor of the "Internet Marketing Chronicles" ezine delivered weekly to 90,000 subscribers -- subscribe free at http://SuccessDoctor.com/IMC/.
Tags: Sales and Marketing