Do Business Well

4. Warranties/repairs: Who will provide ongoing service?

One challenge faced by smaller companies, particularly makers of products, is persuading the prospective buyer that they will be around for the long term to provide ongoing service—repairs, replacement parts, and updated products. The business plan must address the issue of ongoing service, both to determine its exact form and to allow for the costs of providing it.

The first concern that typically arises is that of a warranty. How complete is the warranty and how long should it extend? That is, does the warranty cover parts and labor, or just parts? Does it extend for six months, one year, or two years? Obviously, the more complete and lengthy the warranty, the more costly it will be.

Warranty decisions should be driven by factors similar to those that determine price—how important the warranty is to the market, what competitors are doing, how the costs come out. Concerning costs, providing in-house labor may be very expensive, whereas subcontracting out repairs could be much less costly.

The next concern is additional service. If it’s important that customers be able to buy certain replacement parts, will your company stock them? Or will your company provide repair services? If the answer to these questions is yes, then you must decide if such services will be provided at cost to maintain customer loyalty or if you want them to be profitable in and of themselves.

For companies that expect to come out with improved versions of their basic product, another issue is how those later versions will be devised. Will your company do the development in house and, if so, how much will you spend? Or will you subcontract work out? Or will you put off development until you get closer to the time when the improved version is necessary?

Top management must address these issues and explain them in the business plan.

• Addressing the Key Service Issues:The People Express Model

While I pointed out earlier that People Express had encountered problems when demand forits services turned out to be greater than anticipated, its business plan did an excellent job of itemizing the most relevant service issues—and how they would affect operations. These issues include the number of aircraft required, the best types, their configuration, prices, and scheduling. Indeed, as the business plan suggests, the operating approach—its service features and their costs—is the key to this company’s financial success.

Thus, the plan notes that planes will use oversized storage racks and seats designed to hold a maximum amount of luggage underneath. The company used that point in its advertising to explain how that helped keep fares down. The business plan backs that up by saying that the purpose was to “minimize the need for luggage in the hold, resulting in quick turnaround operations requiring less manpower and ground equipment and most importantly, short ground times.”

The business plan goes on to list seven operational factors that will enable the company to maximize revenues and profits. These include high-density seating, low investment in on- ground facilities, and so forth. Once again, service design becomes key to the company’s overall strategy. By eliminating frills and the heavy fixed expenses common to competitors (extensive ground facilities, management bureaucracy), People Express can cut its costs and, most important from a marketing perspective, its prices.

And so it worked out in practice. The flying public could equate the big on-board baggage bins and high-density seating with the bargain-basement prices the company promoted. The operation was intrinsically tied into the marketing strategy, even if the business plan didn’t state it quite so boldly.

• Assessing the Key Product Issues: The Ben &Jerry’s Model

In Ben & Jerry’s offering statement, the product’s key ingredients are discussed. But note that they are considered almost entirely in relationship to the competition. Thus, the fact that its ice cream uses pure cane sugar is noted by describing what the competition does: “Most other ice creams use some form of corn syrup or corn syrup solids.” The company points out that no fillers are used because competitors rely on fillers.

Technology is important as well, the business plan states: “Perfecting the technique of inserting large chunks of cookies and candies into ice cream has required a considerable investment in research and design and the purchase of new machinery and its subsequent modification.” And the need for quality control is acknowledged, if only briefly.

Possibly related posts: (automatically generated)
Product/Service Issues: What Are You Selling? part 3

• What Are You Selling?
• I Made My Own Advertising Work part 1
• Expenditure on Advertising: Would I have made more Profit if I had Spent less on Advertising? (10-18)
• BRINGING E-MARKETING MIX TOGETHER
• Writing the Business Plan
• Building Online Customer Relationships
• Persuasive Business Investment, the Return is Greater than the Cost continued
• I Made My Own Advertising Work part 3
• What does a Franchise Agreement cover?
• Freelance, Advertising career, the Magnificent Seven

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