Tips on Using "Extreme" Customer Risk-Reversal Techniques

What is a customer risk reversal, and what is it for? Risk reversals are promises, including warranties, "money-back guarantees" and "performance guarantees" that stipulate what customers can do if a product or service is defective or unsatisfying, doesn't live up to its advertised claims, or misses scheduled delivery milestones.

Risk reversals place a self-imposed burden on the seller to assume some or all of the responsibility for something going wrong. For that reason, they are among the most powerful of selling techniques. If risk reversals do their jobs correctly, they will make it nearly impossible for a consumer to resist giving the product or service a try. The more outrageous the reversals are, the more they entice people to buy!

This article describes the power of strong risk reversals, and suggests a way to protect yourself from the small percentage of people who might be tempted to submit bogus claims.

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Consider at Least Three Levels of Risk Reversal

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1) Standard

We've all heard typical guarantees such as: "If you're not 100% satisfied with this wrinkle cream, simply return the empty jar within 30 days for a full refund -- no questions asked." This approach helps customers basically break even; they'll have little to lose by trying the item, except perhaps their time.

2) Stronger

A higher level of risk reversal enables customers to actually come out ahead in the worst-case scenario: "If this product fails to teach your dog to sing in 60 days or less, we'll not only refund your original purchase price, but we'll also give you an extra $25 for your time AND send you the complete CD of '500 Doggie Tunes' as our thank-you gift for trying the program."

3) Extreme

An extreme level of risk reversal raises the bar even further to help customers prosper, regardless of the circumstances. The Korean automaker Hyundai recently demonstrated this during the height of the current economic slowdown. Automakers around the world were seeing substantial, double-digit declines in their vehicles sold. Yet Hyundai boasted only a 1.5 percent decrease in the same period. Why was that? Hyundai isn't the most powerful or well-known car company.

The results were due primarily to an extreme risk reversal strategy aimed directly at consumers' fears in the shaky economy. Hyundai's Web site explained that its "Hyundai Assurance" program covered anyone who needed to walk away from a car loan or lease due to a loss of income from involuntary unemployment, physical disability, medical impairments, or various other circumstances. Hyundai stated that it would make the owner's car payments for three months, and if needed, let the owner return the car within a year with no further obligation, all while protecting up to $7,500 in negative equity.

How effective was this approach? The numbers above spoke for themselves. Chances are good that the revenue increases Hyundai saw from using this risk reversal technique far exceeded the expense of disbursing the warranty benefits. Following Hyundai's lead, other carmakers soon began to offer similar "extraordinary guarantees."

Not only do these extreme promises reverse the risk for customers, but they also provide powerful branding opportunities for organizations. Many businesses have staked their reputations on bold -- or even outrageous -- assurances that became their unique selling propositions. For example, FedEx's business skyrocketed after it adopted the promise, "When it absolutely, positively has to be there overnight."

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Setting Boundaries on Extreme Risk Reversals

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It's one thing to offer terrific promises, but it's another to worry about the possibility that some consumers might attempt to improperly invoke your company's warranty.

Therefore, consider the legitimate conditions that you can place around your promises to keep the risk reversals from becoming a free-for-all. Although incidences of customers "cheating" tend to be relatively few, using conditions can help discourage people from submitting unqualified claims.

Orkin, a well-known pest-control company, offers an excellent example of how to set effective and reasonable boundaries around extraordinary warranties. Quoted below is Orkin's "Triple Guarantee," which I've broken into its "promises" and "conditions."

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Promises:

When you see a pest . . . your request will receive a response within 24 hours. If during your regularly scheduled treatments you are not completely satisfied with the results, Orkin will re-treat to your satisfaction or refund your last monthly payment. If, after 60 days, you're dissatisfied with Orkin service and decide to cancel, Orkin will pay the reasonable cost of an initial treatment by your choice of pest control operators. If your company is fined by a regulatory agency due solely to a pest infestation, Orkin will reimburse you for any fines paid, not to exceed $50,000*.

Conditions:

*Your account must be current, under contract for more than 60 days, and your business must be compliant with sanitation and structural requests as noted on Orkin service reports.
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In conclusion, the success of bold guarantees and extreme risk reversal techniques might inspire you to develop stronger promises of your own. At the same time, if you're worried about potential customer deception, think about how you can reasonably constrain your assurances while still providing generous -- or even outrageous -- consumer protection.