Lifetime Warranty—a Timeless Opportunity?

Starman and his Tesla Roadster became the first automotive satellite of the sun when they were launched into space, as part of the payload, during SpaceX’s “Falcon Heavy” test flight. Based on the distance Starman has covered, the warranty on his Tesla has expired long ago. According to [i]whereisroadster.com, Starman’s Roadster has exceeded its 36000-mile warranty more than 13,000 times over in the past year.

Should Starman have taken a lifetime warranty on his Roadster?

Well, it depends, since “lifetime” warranties are most often “limited” warranties, and the definition of “lifetime” varies widely. Definitions range between the true lifetime of the product, the period when the product is owned by the first buyer, the period till the point that the production and sale of the specific version or model are stopped, and other narrower definitions.

Marketing gimmick or reality?

Longer warranties do seem to have become a competitive weapon in numerous industries. Some companies—Midas being a very well-known example—have actually built their whole brand around this concept, and have been very successful.

But do customers really get benefitted? It seems they do.

As a popular Warranty magazine[1] puts it: “In June 2009, the Detroit News reported that Rachel Veitch of Orlando FL was still driving her yellow 1964 Mercury Comet Caliente, with 557,000 miles on the odometer and counting. Over the past 45 years, she has taken advantage of numerous lifetime warranties. Veitch is on her seventh Midas muffler, and thank you, gentlemen, for the lifetime warranty,” writes the author of the article, reporter Neal Rubin. “She’s had three sets of Sears shock absorbers, also through a lifetime warranty. And though the number seems high, she claims to have had 16 free batteries, courtesy of J.C. Penney and Firestone.”

The complex nature of lifetime warranties

Lifetime warranties present challenges in the area of cost and pricing models since it is very difficult to predict events over such long time spans. What makes things even more complex is the fact that different types of products have significantly different failure patterns in the long term.

Digital products, for example, have very few moving parts, and therefore have a front-loaded failure pattern. If they do not fail early in their lifetime, they may have a relatively failure-free lifetime. Industrial machinery on the other hand, with lots of moving parts, suffer constant wear and tear, and the rate of failure usually increases over time.

Due to these uncertainties, some OEMs are transferring the warranty reserve burden for lifetime warranties to franchisees and partners. Other forms of warranties, like the third party extended warranties, service contracts, and labor warranties, are also being used to transfer the warranty risks away from OEMs while still providing customers the peace of mind that they seek.

Another interesting development is the advent of ‘Digital Twins’. The data and intelligence obtained from digital twins may soon allow us to get much better predictive models, making it easier to design long-term warranty offerings.

In conclusion, though lifetime warranties can be used as a differentiator for competitive advantage and customer loyalty, they can also often be very complex, due to the ambiguity around the terms of such warranties and the difficulties in arriving at reasonable cost and pricing models. It is wise to ensure that such offerings are backed by in-depth analysis and strategic intent.

To gain valuable insights into challenges around developing cost and pricing models for lifetime warranties, and how technology can help you stay ahead of the market, please come and listen to our speakers at the WCM conference 2019.

 

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