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*A Book Review*

Extraordinary Guarantees

By Christopher W. Hart, Ph.D.

by Michael C. Gray

July 1, 2005

Is adopting an extraordinary guarantee the road to ruin or a key to business success? What role does an extraordinary guarantee play in reengineering a business? Christopher Hart explores these issues in Extraordinary Guarantees.

What makes a guarantee extraordinary? According to Christopher Hart, an extraordinary guarantee goes beyond industry standards, beyond what competitors are doing, beyond what customers had ever thought to demand, and even beyond what the company itself at first thought was feasible.

Guarantees have long been used to sell products, especially those sold by mail order. During the 1980s, guarantees started to be given for services as well. The purpose of guarantees is to inspire consumer confidence by reversing the risk of the transaction.

An extraordinary guarantee can provide a powerful marketing advantage by differentiating a company from its competitors that won't offer such a strong guarantee. An example that has become a classic is Domino's Pizza - "Fresh, hot pizza in 30 minutes or less, guaranteed." Another is Federal Express - "Absolutely, positively overnight." Land's End may have the most succinct guarantee - "Guaranteed. Period."

The guarantee also provides a focus for efforts to transform organizations to deliver high quality. Before the guarantee is offered, the systems must be in place to assure the company's promise will be met. Hart gives the example of Oakley Millwork, a Chicago supplier of milled wood and other products to the regional housing industry. Between 1988 and 1991, Oakley experienced a 33% increase in sales during a building recession, partly as a result of offering a "no backorder guarantee". If any item ordered from its catalog wasn't in stock and available for immediate delivery, the customer would receive the item for free. To meet the guarantee, Oakley streamlined its operations, slashed costs and improved service. Inventory turnover increased from 4.2 to 5.8 times per year, special orders of merchandise were reduced from 15% to 8% of its items, and the company virtually eliminated backorder deliveries.

Some companies have installed internal guarantee programs to achieve some of the operational benefits of external guarantees between divisions, departments or groups within their organizations.

Some businesses are concerned that guarantees can send the wrong message to customers. For example, high-scale restaurants and consulting firms believe an explicit guarantee does not give a high scale appearance. It might give the impression a firm is begging for business. The explicit guarantee could even introduce an element of doubt into the customers' minds about the ability of the firm to deliver on the promised level of service. There is some substance to these arguments. If the business operates according to the belief that a guarantee is implicit in the relationship, there should be no issue or argument in reaching a satisfactory settlement of disputes with customers. Personally, I have found clients are more willing to pay a fee for an initial consultation when I guarantee their satisfaction. ("If, at the end of the meeting, you feel you've wasted your time, you won't owe me anything.") I've had one "taker" in years of offering this guarantee.

Another concern that is often raised is cheating by customers. Will customers claim they aren't satisfied, even when they are? When most businesses actually measure the level of claims by customers on their guarantees, they find the level of cheating is very small. A company's policies shouldn't revolve around a small group of cheaters. The only way a company can really find out the level of cheating is to test offering the guarantee, perhaps in pilot locations, determine the level of claims and whether customers appeared to be justified in complaining. If you are serving a group of customers who are cheaters, maybe you should re-examine your business and target a different, more honest group of customers.

In some cases, claims can be managed by making conditions for the extraordinary guarantee. For example, the PRISM pest control service has an extraordinary guarantee to completely eliminate cockroaches from restaurants, hotels and other businesses. If cockroaches reappear while the service is in force, the company refunds one year's worth of fees, will pay for one year of a competitor's service, and, if the problem results in a health department violation, PRISM pays any fines and pays the customer $5,000 if it is temporarily shut down. In order to qualify for the guarantee, customers have to religiously follow rigorous cleaning and maintenance routines that PRISM specifies. If a customer fails to follow the routines, not only is the guarantee void, but PRISM will stop serving the customer.

Christopher Hart includes a case study of how Promus Hotel Corporation designed and implemented an unconditional guarantee at its Hampton Inns. The guarantee has since been extended to all Hampton Inns, Hampton Inn & Suites, Embassy Suites and Homewood Suites.

Your business and marketing education should include studying Extraordinary Guarantees. As marketing expert Dan Kennedy says, "Offer the strongest, boldest guarantee possible. If you can't guarantee the product or service, go find something else to sell!"

Buy it on Amazon: Extraordinary Guarantees : A New Way to Build Quality Throughout Your Company & Ensure Satisfaction for Your Customers.

For our new reviews of business and self-improvement books, subscribe to our newsletter, Michael Gray, CPA's Tax & Business Insight!

Extraordinary Guarantees, by Christopher W. Hart, Ph.D. shows how guarantees can help sell your products or services.


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Michael Gray, CPA
2190 Stokes St., Suite 102
San Jose, California 95128
(408) 918-3162
Fax (408) 998-2766
email: info@profitadvisors.com
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