Warranty Policies and Practices of Consumer Packaged Goods Manufacturers

Citation:

C. L. Kendall and Frederick A. Russ (1972) ,"Warranty Policies and Practices of Consumer Packaged Goods Manufacturers", in SV - Proceedings of the Third Annual Conference of the Association for Consumer Research, eds. M. Venkatesan, Chicago, IL : Association for Consumer Research, Pages: 349-355.

Proceedings of the Third Annual Conference of the Association for Consumer Research, 1972      Pages 349-355

WARRANTY POLICIES AND PRACTICES OF CONSUMER PACKAGED GOODS MANUFACTURERS

C. L. Kendall, University of North Carolina

Frederick A. Russ, University of North Carolina

One manifestation of our times is the increasing public demand for more protection, performance, and responsiveness from its institutions. In a high consumption society it is inevitable that these demands will fall heavily on the consumption artifacts of that society and the organizations that make them. Consumerism is no recent phenomenon however. The current furor over alleged product failure and maker responsibility is only the latest peak in a long controversy over the determination of obligation and responsibility in the buyer-seller transaction. The present swell of consumerism is, however, distinguished by its intensity and breadth--probably due to such factors as mass communications broadly consumed by an increasingly well-educated and aware public.

A related, concurrent development has been the increased tempo of change in the legal relationships between buyer and seller caused by judicial recognition of the changes in commerce created by mass production and distribution. The retailer-consumer relationship has long been in decline: self service spreads and the large national manufacturer communicates directly with the consumer through national advertising. The old legal relationship between the consumer and the manufacturer was two or three times removed. Under the law of contract the consumer who sustained injury had recourse only to the retailer who sold him the goods; the retailer to the wholesaler; and so back through the channel to the manufacturer--an expensive, time-consuming, and cumbersome process of litigation. In recent years a direct consumer-manufacturer relationship is increasingly recognized by the courts: an injured or disappointed consumer may be able to seek direct legal redress against the manufacturer.

Although most legal actions against manufacturers are still based on injury through negligence, product liability arising from warranty is becoming more and more important. Under warranty, fault or failure--i.e., negligence on the part of the manufacturer--is irrelevant. The only thing that need be proved is that a warranty existed, and that there was some breach of it.

There are two types of warranty. The first is an express warranty by the manufacturer that promises or disclaims something, e.g., "replacement of (certain) defective parts for no more than one year from the date of purchase." Much confusion exists as to whether, and how much, sales puffing constitutes a warranty. The second type of warranty is an implied warranty--simply that the goods sold will be appropriate for, and perform effectively in the commonly understood function of that good. This warranty exists in all transactions unless superseded or somehow modified by an express warranty. Aside from the disclaimer or obligation-limiting aspect of warranties, they often have a promotional nature as well- e.g., the ubiquitous "money back" guarantee--and true product-differentiating features such as the guarantee on the 1972 American Motors automobiles.

In recent years much attention has been focused on the warranties of automobiles and other major consumer expenditure items, principally appliances. The literature on this topic deals primarily with the capability, willingness, and alacrity of the manufacturer in making good on the claims of the buyer against the explicit specifications in the purchase contract. Some attention has also been paid to the rights of claimants under the doctrine of implied warranty as well. The attention paid warranties of these major consumer expenditure items is natural; they represent major investments and high potential for serious inconvenience in the case of malfunction.

Warranties are also given or implied by promotion or package copy for "small" consumer expenditure items such as packaged foods, health and beauty aids, common home-use products, etc. These goods, although individually less important than "big ticket" items, account for a large proportion of total consumer expenditures and an even larger proportion of total transactions. In spite of this, a search of the literature suggests that little is known of the warranty practices of consumer packaged goods manufacturers (CPGMs).

A malfunction or a frustrated expectation in a product costing $.89 or $1.49 is far more likely to result in a muttered expletive and a subsequent brand switch than in some kind of complaint. Recourse to litigation by an individual consumer for such a product "failure" (unless it is botulism in vichyssoise) is almost beyond the realm of comprehension. Even a complaint to the manufacturer is unlikely when a low priced packaged item fails: the trade-off between consumer effort and the possibility of a satisfactory corporate response-apology, refund, or replacement--is heavily weighted in favor of taking no action.

An area of such size--in total consumer expenditure and transactions and in potential abuse and ill will to the business system--deserves some illumination by more information. The remainder of this paper is devoted to describing the results of exploratory research designed to shed some light on CPGM warranty practices and policies. Unlike automobile and appliance manufacturers, CPGMs sometimes guarantee both quality and satisfaction. The latter is undoubtedly possible ant a practice because of the previously-mentioned inhibitions to complaints or claims, and the inexpensive nature of a refund for those few complaints or claims that are made under such a warranty. A search of the literature suggests that little information exists on (l) which manufacturers or industries give such warranties, (2) how manufacturers respond to claims against warranties, (3) whether there are response differences between manufacturers with express warranties and those with implied warranties, (4) how manufacturers themselves view warranties and claims, and (5) how consumers perceive these warranties. Two studies were undertaken to explore the first three topics. Research on the last two is underway.

SHELF AUDIT STUDY

The objective of the first phase of the research was to determine what manufacturers gave express warranties, and the nature of these warranties. The methodology was a simple shelf audit of several hundred consumer packaged goods in a number of selected packaged goods categories. The survey was limited to package copy. It was felt that warranties would occur more frequently in package copy than in media advertising for that product, although this is a topic for future research.

The principal finding of this stage of the study was that most package goods of the type found in super markets and drugstores do not carry express warranties. Further, though the incidence of warranties is small in all categories, it does vary somewhat across product categories. For example, in all types of frozen foods surveyed (39 brands comprising roughly 200 different products), only two products, both from the same company, carried an express warranty, and only two others carried a Good Housekeeping Seal. In contrast. guarantees were common in margarines - about one third. Most package copy for foods is limited to the mandatory listing of ingredients and an occasional puff concerning ingredients or process, e.s>, "creamy", "selected", etc. or a statement such as "Superior taste with lighter texture". Such claims are unlikely to be interpreted as express warranties.

Overall, the incidence of promotional claims and warranties on food products is much less than in such product categories as health and beauty aids and automotive and home use products. Warranties could provide a basis for product differentiation, because in no industry studied were all major brands guaranteed. But warranties don't seem to be used in product differentiation strategies, because it was rare to find the guarantee featured prominently on the package.

Warranty policy is anything but consistent. A manufacturer may have a money back guarantee on one product line and not on another; one product within a product line and not on the others; and, capriciously enough, in the case of two products discovered, a guarantee on one size of a product and not on the other size of the same product' In one major packaged goods industry, one of the three large companies that dominate the industry carried a satisfaction-or-money-back guarantee on all of its many products, while its two competitors had guarantees on none.

Almost all express warranties exhibited some variation of the "satisfaction guaranteed or money back" form rather than providing a list of legalistic disclaimers as do major expenditure items. Often the consumer packaged goods warranties made impossible or inconvenient demands on the dissatisfied consumer. To make a "legitimate" claim, consumers were required to send a sales slip, which is rarely saved, or the unused portion, which is costly and inconvenient to return--or may not even be allowed through the U.S. mail.

The low incidence of warranties and the apparent lack of a coherent warranty policy lead to several possible conclusions, all of which require additional substantiation.

1. CPGM's perceive little pressure from consumers or competitors to offer express warranties.

2. Where warranties are offered, product characteristics and company size may be determining factors. Those products with high social or technical risk (e.g.,health and beauty aids, automotive additives) exhibit more guarantees than those with low social and technical risk. Furthermore, those companies which are small or not well-known are more likely to offer guarantees than large, well-known firms.

CORPORATE RESPONSE STUDY

The results of the shelf audits lead to several questions. If few CPGMs guarantee their products, do they still stand behind them? Do CPGMs with warranties respond "better" than those without? What forms do the responses of CPGMs to claims most frequently take?

The news media and informal research suggest a pronounced skepticism in America about CPGMs' response to claims. Many seem to feel that CPGMs are not concerned about consumer complaints (as evidenced, for example, by the lack of express warranties). Furthermore, CPGMs are not expected to make it easy for the consumer to get satisfaction: if CPGMs do respond, it is felt that they are likely to throw up roadblocks to hinder a consumer making a claim.

To find out whether these biases are justified, and to get answers to the previously asked questions, an exploratory study was conducted. Methodology and results of the study are described below.

METHODOLOGY

A judgment sample of approximately 200 different brands of consumer packaged goods was chosen to provide the initial data collection base for the study. The sample was reduced on the basis of the following decision rules.

1. Only those products with which dissatisfaction (rather than a product malfunction) could possibly exist should be considered.

2. Brands should be chosen from a wide variety of product categories, but where possible, there should be several brands chosen from a given product category.

3. In each product category there should be an approximately even split between brand with warranties and those without. In product categories where warranties are especially scarce, a balance should be struck between those with strong package claims and those without.

4. Only one product should be chosen per manufacturer. (This limitation was forced by the apprehension that CPGMs might be alerted to the study if they received more than one complaint, almost identically phrased, from the same location.)

The resulting sample of 40 contained five brands in each of the following categories: insecticides, automotive oil additives, ready-to-eat cereals,shampoos, and deodorants. The remaining fifteen brands were widely scattered across mostly non-food product categories. Each of the brands chosen was nationally advertised and ranged in price from $.19 to $3.00 (median = mode = $.99). Ten brands exhibited express warranties; the remainder made package claims of widely varying strength.

Each of the products chosen for the sample was purchased at a local super market or drugstore. Then, the products were tested to determine possible or actual reasons for dissatisfaction. After using the products, the researchers developed a standardized letter of complaint to be sent to each "participating" CPGM. The forty letters were identical except for handwriting and a specific complaint related to product performance and package claims. Within a given product category,letters were, as much as possible, identical. When a guarantee indicated that some proof of purchase was required, a sales slip, price tag, label, or boxtop was remitted with the letter.

Each letter was mailed--on the same day--to the manufacturer listed on the package. Although standard corporate directories were available to the researchers, it was felt that such a resource might not be readily available to the typical consumer; so, only the addresses printed on the product or package were used. When (if) responses to the complaint letters were received, the postmark date was duly noted and the responses were saved and categorized. The following information was collected:

1. Incidence of response

2. Speed of response (measured by the difference between the postmarked date of response and the original mailing date. If the response involved more than one piece of mail, then the earliest postmark date was used.)

3. Type of response (type of letter, method of providing satisfaction, position of respondent, etc.)

RESULTS

Of the 40 letters of complaint which were mailed, 33 received some kind of response. There was no response (at least none within 2 months) to six of the letters, and one letter was returned due to an insufficient address. This last case is properly included with the no response category, because the dissatisfied consumer would not be easily able to reach that manufacturer to make a complaint.

Among those CPGMs who responded, the speed of response varied greatly. The average speed was 14.6 days, but eight CPGMs responded in either 7 or 8 days and another eight took more than three weeks. All who did respond within the two months allotted for the study did so within 4 weeks.

The response rate of 80+ percent can be cause either for optimism or for pessimism about the concern of CPGMs, depending on one's initial bias. Even an optimistic view must be tempered by recognition that not all of the responses would have been satisfactory to the complaining consumer. Rather than providing a refund or a replacement product, seven of the 33 responding firms wrote to ask for (additional) proofs of purchase or more information, or made some other temporizing response. The net effect of these "delaying" tactics (costly both to the customer and to the CPGM) was that the satisfactory response rate was reduced to only 65 percent of all letters sent.

Although the method by which the sample was drawn precludes tests of statistical significance, it is obvious that, in our sample, response for products with express warranties was essentially the same as for those without. Nine of the ten guaranteed products received a response (seven of those were satisfactory); 24 of the 30 non-guaranteed products received a response, 19 of which were satisfactory.

The 26 CPGMs who responded satisfactorily to consumer complaints took different approaches to satisfying those complaints. The most common response was a refund: 16 CPGMs sent a refund for the purchase price of the product, although none of them provided any monetary compensation for the consumer's cost of making the complaint. Three CPGMs did, however, send a replacement product as well as a refund. Another eight firms mailed either a replacement product or, in three cases, another product which, it was hoped, would be more satisfactory. The cost of mailing these products often exceeded their retail value; so it was surprising that only two CPGMs responded with coupons which entitled the consumer to a free product at his local retail store.

The response of firms was not limited only to refunds or replacement of the product. A number of CPGMs showed concern for the quality of the product and the conditions under which it was used: six firms requested additional information about the circumstances of use or purchase and another seven sent instructional material to help the consumer make better use of their products the next time.

The typical respondent to a complaint came from the customer service department of the firm (15 of the 27 whose positions were identifiable). Eleven of the remaining 12 identifiable respondents were in positions of such authority that they would be perceived to be able to "do something" about rectifying the cause of the complaint. Although most responses to complaints are probably "robotyped," only four of the responding CPGMs sent an obvious form letter. The personal or robotyped responses ranged from one short paragraph to three pages.

The range of response to consumer complaints may be illustrated by looking at the automotive oil additives product category. Letters were sent to 5 firms, 3 of whom provided express warranties for their products. All products retailed for $.99. The manufacturer of product A (CPGM-A), with no guarantee, did not respond at all. CPGM-B, also without a guarantee, sent a letter and followed it up with a phone call and visit from a regional sales representative to see if the problem could be determined and solved. CPGM-C, with a guarantee that read "satisfaction guaranteed or your money back", sent a long, involved form which the consumer was requested to complete in order to receive a refund. And the manufacturer required a proof of purchase even though the guarantee did not state that such was necessary. (How often would you save the sales slip or the empty can for some oil additive you'd poured into your car's crankcase?) CPGM-D, with a double-your-money-back guarantee, also requested proof of purchase (a requirement unstated on the package) but at least made the request in a pleasant personal letter and did not require the completion of a tedious form. Finally, CPGM-E, also with a guarantee, sent a personal letter, a refund for the purchase price, and a lubrication and engine performance booklet to help the consumer understand the kinds of problems that the product could or couldn't cure.

CONCLUSIONS

The original bias indicated by current consumerist skepticism was not altogether justified. The consumer can get help when a product performs unsatisfactorily, even though the product may not be expressly guaranteed. CPGMs sometimes even go the extra mile: (l) they may provide a response over and above a refund of purchase price or replacement of the product and (2) they respond even though they may not be resPonsible for product failure. The essentially equivalent response for products with or without express warranties may mean that the lack of warranties on most consumer package goods is, or should be, of little importance to consumer decision-making.

The silver lining is not without its cloud, however. Some companies did not respond or, if they did respond, they made a temporizing response which caused additional effort to be expended by the consumer. The reasons for these practices are difficult to understand, particularly when the consumer movement is paying such close attention to the activities of all kinds of manufacturers. Equally puzzling is the fact that a few of the CPGMs failed to use their response as an opportunity to improve public relations and to avoid negative word-of-mouth advertising. Indeed, two of the worst "offenders" were companies which have been in recent public view because of charges levelled at them by the FTC about their promotional practices'

The big picturer if any clear picture emerges, is one of fragmentation or diversity. Some CPGMs guarantee their products; others do not. Some respond to consumer complaints; others do not. To understand the reasons for this diversity, additional research must be undertaken. A brief description of such research is provided in the remaining section of the paper.

WHERE-DO-WE-GO-FROM-HERE?

Two areas for future research suggest themselves. The first area focuses on what the consumer packaged goods industry is doing and why. A study is currently underway, using a mail survey approach, to obtain information about CPGM warranty policies and their response to consumer complaints. This survey will obtain information to answer questions such as: How many CPGMs guarantee their products? Why? Who sets guarantee policies? Where do the guarantees appear? What do they say? Why do most CPGMs fail to guarantee their products? What is the volume of consumer complaints? Who responds to consumer complaints and how? What impact have complaints had on company decisions?

This information should be of value to CPGMs themselves, because the product guarantee is a part of the marketing mix. It may also be illuminating to consumer advocates, who want to know whether and how "strongly" CPGMs stand behind their products performance. [Preliminary results of this study will be available by the date of the ACR meetings.]

A second area of research, also of interest to CPGMs and to consumer advocates, is to investigate the behavior of consumers with regard to guarantees for consumer package goods. Such questions as the following need to be answered. Do consumers perceive guarantees as influential factors in purchase decisions? What types of consumers complain about products? Is the probability of a complaint increased by the presence of an express warranty? Are complaining consumers generally satisfied with corporate response to their complaints?

Information from manufacturers and consumers, along with the legal opinions about warranties which have already been rendered, should provide a balanced picture of warranty and claims policies and practices and indicate whether and where action by manufacturers, governments, and individual or groups of consumers would be appropriate.

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