Legal guarantee or an extra warranty? Here is what you need to offer

A smart warranty policy can help potential customers decide to do business with you. Because you are offering the customer something your competitors are not: long-term product enjoyment. A legal guarantee is required, but a commercial warranty is optional. A lifetime warranty is an example of a commercial warranty. That means you as the seller are voluntarily extending the legal terms or conditions, as an extra service for your customer.

Required: legal guarantee

The legal guarantee is your customer’s right to a product that works properly. The product must do what you promise it will do, may not be damaged, and the quality must be proportional to the price and the brand. If it does not meet these criteria, then your customer has a right to a new product, repairs or a refund. Also the following rules apply:

• Has your customer told you that your product is defective within a year of the purchase? If you are convinced that the product works properly, but that the defect was caused by improper use by the customer, then you must prove that the use was improper. This is called the reversed burden of proof.
• The warranty form must be written in clear language. A clearly written warranty form describes the procedure, terms and conditions. It should also explain the legal guarantee, and when the commercial warranty goes into effect. Does your company promise that your electric toothbrush will last for 10 years? Then the legal guarantee is 10 years. Do you also offer a lifetime warranty for your electric toothbrush? Then the commercial warranty will go into effect after 10 years.
• Do you sell a digital product or a product with a digital element, like a smartphone or a refrigerator with a Wi-Fi connection? If the software no longer works, and the problem turns out to be a lack of updates, then according to the new law the Authority for Consumers and Markets (ACM) can punish you for not providing an update. That can take the form of a fine, for example.

Optional: commercial warranty

A commercial warranty (in Dutch) is sometimes also called a ‘manufacturer’s warranty’ or a ‘retailer's warranty’. As a maker, you can offer a manufacturer’s warranty. As a seller, you can offer a retailer's warranty. You promise the customer an extra service, like lifetime use, or repairs. A commercial warranty is not required by law. You can even ask the customer to pay extra for it. If you offer a warranty for money, keep in mind the differences between a warranty and insurance (in Dutch). When you offer insurance, De Nederlandsche Bank can consider you an insurance company, and you will need a licence. Whichever form of commercial warranty you offer, you are required to keep your promises.

Protect yourself with warranty terms and conditions

Do you offer a commercial warranty? If so, then offer clear warranty terms and conditions. This will prevent conflict with your customer, for example, or a bad review for your company. The terms and conditions should describe the following subjects:

• The type of warranty: describe what you are guaranteeing, and what you are not. For example, you can guarantee your electric toothbrush for several years, but not the brushes. Explain your solution. If you explain that you will offer repairs, the customer will not be able to demand a new product. Say whether your customer needs a warranty certificate and what exactly counts as a warranty certificate.
• Optional registration: do you want your customers to register the product, for example with the serial number? Then ask for their email address, and ask for permission to send them emails. That way, you can keep your customers informed about things like security updates or software updates.
• The duration of the warranty: keep the legal guarantee term in mind, as well as the commercial warranty term. Say when the warranty goes into effect. For example: the date of purchase, or the day the product is delivered to the customer.
• The delivery costs for new parts.
• The solution you offer if the product is no longer available.

Lifetime warranty as an extra service

Child stroller brand Greentom was the first Dutch stroller brand to introduce a lifetime warranty. Guillaume Smitsmans, Sales- and Marketing Director at Greentom, explains how Greentom arranges its warranty: “By making it easy for the customer to order parts, Greentom’s customers can enjoy their stroller for their entire lives.” Smitsmans shares what they learned at Greentom below.

Use as few parts as possible

When your product uses separate, replaceable parts, you can save a lot on repair costs and offer fast solutions. “Our stroller is made of 34 unique parts. For comparison: most strollers have between 200 and 300 parts. The small number of parts makes it easy to assemble our strollers. The parts can also be changed easily. If something does not work on a stroller, we send the part to the customer and they can replace it themselves with simple instructions.” By buying parts in advance, Greentom always has them in stock. “We set aside a percentage of our budget for service and warranties. Because we have parts in stock, we can help our customers immediately.”

Use the customer’s feedback to improve your product

The costs for replacing products decrease as you improve the product. “Every brand has to deal with teething issues at first. Over the past few years, we have improved our strollers based on customer feedback. Now the strollers are a very high-quality product. At the moment, less than 5% of our customers come to us with a question or small defect within the first two years. In most cases, the customer can solve the problem on their own with simple maintenance.” See your customer’s complaints as feedback, and use them to improve your product.

Put money aside for repairs

Putting part of your budget aside helps prevent surprises. “In the manufacturing industry, it is normal to use margins of error and to keep them as low as possible. You can organise everything perfectly, but there is always a chance that a batch of parts is defective. For example because of a machine error or human mistake.” Take a look at what you spent on repairs and replacement products over the past year. Then set aside that amount for the next year.

Offer a sustainable product, thanks to a warranty

“To us, it makes sense for a sustainable product to have a lifetime warranty. Because the product is made of very few parts, and the parts are easy to replace, we can extend the life cycle of the product. When a part breaks, you do not have to throw away the whole stroller. In our sustainable and circular vision, a warranty is completely normal, and we do not use it for commercial purposes.”

Warranties in mergers and acquisitions

As a business owner, have you bought another business? If so, then you must also accept all of the warranty terms that have been agreed on with existing customers. When taking over a company you always take on their obligations as well. See the page Business transfer assistance if you have any questions about this subject.