In the competitive world of HVAC comfort systems, enhanced product warranties serve as security blankets for consumers, provide marketing advantages for manufacturers, and potentially, help contractors keep customers for life. When consumers are faced with a choice of HVAC products, well-written, extended warranties give them one more reason to make a purchase, without having to fear what’s in the “fine print.”
Building Consumer Confidence
Warranties are based, in part, on the belief that “peace of mind” can be used to overcome buyer resistance. Since comfort systems are built to last significant periods of time, a 5- to 15-year warranty assures the homeowner that they’ll be protected from premature system breakdowns or smaller repairs, rather than suggesting that such an event would actually occur. Just as with home, auto, or life insurance, the years can fly by before a claim is ever filed. But in the meantime, the customer can rest easy, knowing their pocketbook is also protected.
To the contractor’s benefit, that’s one less reason for a customer to “shop around.”
“A product warranty is, and always has been, a marketing tool,” according to Andy Armstrong, director of marketing, Johnson Controls-Unitary Products, Norman, OK.
Consumers want to protect 13 SER investments.
“Regardless of the expectation of the life of the product, all manufacturers weigh the cost of the warranty against the additional sales gained from the better offering,” Armstrong says. “At Johnson Controls, we design, test, and manufacture products to last; warranty is designed to support the sales effort. If a better warranty will help our contractors improve closing ratios and gross margins, it’s something we’ll consider.”
Armstrong says warranties:
- Establish product differentiation, which can be a challenge, especially with entry-level and mid-tier offerings;
- Build confidence with homeowners, who are willing to pay for extra assurance, which in turn provides a higher gross margin for the contractor;
- Help eliminate the perception that “all systems are alike.” Any discussion with a homeowner that includes warranty implications means that the contractor/dealer has transcended the “BTU in a box” mentality.
Optional extended warranties sold to improve standard factory warranties prompt more regular service check-ups, which in turn provide opportunities for add-on sales, such as zoning or Indoor Air Quality (IAQ) products.
“Since warranties require consumers to follow recommended maintenance schedules, they can help contractors keep in touch with customers throughout the warranty period,” adds Lisa Townley, director of marketing, International Comfort Products (ICP), Lewisburg, TN.
“However, an extended service agreement, such as ICP’s Homeowner’s Extended Labor Program (HELP®) is a more effective tool for building longterm relationships. When customers buy HELP contracts from their installing contractor, they return to that contractor for covered service for the term of the contract—up to 10 years,” Townley says.
Is the insurer solvent?
With the more liberal provisions of extended warranties, and the possible replacement of a high priced comfort system on the line, these “bullet proof, no questions asked” warranties point to the importance of contractor training when evaluating an alleged system failure.
“We place a very high priority on training our customers on the proper application, installation and service of our equipment,” Armstrong says. “If we succeed in that venture, the warranty is a very small expense for all of us.”
Protecting The Investment
The higher costs associated with today’s high efficient comfort systems bring out consumers’ protective instincts.
“In the HVAC industry, the 13 SEER efficiency standard has caused an increase in the product price for consumers, and they’re looking to extended warranty system to protect their larger investment,” says Frank Fodge, sales and marketing program manager for Rheem. “They know that it’ll be taken care of, and won’t have to open the phone book and call the first HVAC company they find; they’ll call the company that installed it, and that sold them the warranty.”
Best warranty providers reinsure policies.
Townley agrees that strong warranties resonate with dealers and consumers, and play a part in both groups’ brand selections.
“Dealers tell us they look at warranties when deciding what brands to offer,” Townley says, “and consumer research shows that homeowners rank warranty strength very highly, just behind reliability, quality, and efficiency.”
According to Townley, consumer research has also found that a strong warranty is more important than the price of the product, and four out of five homeowners prefer a strong warranty over a well-known brand name.
You’d think that the consumer feedback in favor of strong warranties would lead to an increase in warranty sales. Not so, according to Fodge. He says contractors can do more to trumpet the benefits of HVAC product warranties, to the point that warranties and service agreements should be key elements in all sales presentations around the kitchen table.
“I tell contractors to include the price of a warranty, service agreement, and any finance costs in the total job cost,” Fodge says. “It’s easier to remove service agreement language from the closing presentation than it is to go back later to try to sell one. Once sold, the service agreement creates a revenue stream that helps contractors even out their year through service or preventive maintenance work before the busy seasons start. And, they help keep technicians busy during slow periods.”
Townley agrees that dealers may be too quiet about promoting warranty benefits to consumers.
Research shows consumers value HVAC warranties.
“One of the key takeaways is that while warranties are important to homeowners, not all dealers communicate what is covered. Dealers can win more sales by simply explaining their warranty coverage and by offering an optional extended parts and labor agreement,” Townley says.
For some time, Steve Chancey, president and owner of Chancey & Reynolds, Inc., Knoxville TN, was wary about warranties, based on a couple of bad experiences in the 1990s, in which two warranty companies went out of business, and left him with thousands of dollars of warranties to honor.
“One of the major manufacturers was honorable about it, and picked up the contracts that were left, and backed them up,” Chaney recalls. “Another was a Universal Protection Plan provider that went out of business owing us about $17,000. That made me leery about whether or not the money that’s due to our company would be paid.”
Now a Rheem dealer, Chancey sells extended warranties through Rheem Air Conditioning, with contracts serviced through Protection Plus.
The lesson here — for contractors who use warranties as one more way to attract and keep customers — is to partner with manufacturers who go the extra mile in honoring them. Just ask Gary McElwee. President, Elliott-McElwee, Inc., Pleasantville, NJ.
“We’re a Lennox dealer, we deal directly with the factory, and we’re happy with that. The equipment costs a little bit more, but the backup you get is unreal,” McElwee says. “If a manufacturer or distributor doesn’t handle warranties online, with immediate credit, I don’t want to deal with them. If you receive credit three months later for a heat exchanger, where does that leave you?”
No Worries with Better Warranties
Peter Dikeos, senior vice president of operations for Equiguard, Oak Brook, IL, a provider of extended warranties and service agreements for the HVAC industry, says the best warranty programs can put most contractors’ fears to rest. He suggests contractors explore extended warranties more thoroughly before dismissing them.
- The first misunderstanding among contractors, according to Dikeos, is that all warranty providers are alike.
“There are warranty companies who provide ‘whole home’ warranties, which are often used as part of a home sale. They tend to use the cheapest service provider, and the service provider does the work as cheaply as possible,” Dikeos explains.
- “Another concern of small business owners is the protection of their client lists,” Dikeos says. “Equiguard gives an iron clad guarantee that their customer lists will be protected.”
- Some contractors also complain that their warranty claims are paid too slowly. That’s a twoway street, with responsibilities to both parties. Dikeos says timely claim submittal by contractors is the key to timely refunds. Once a contractor has a warranty claim in hand, the claim should be processed as soon as possible, to receive timely payment.
“From the time of the repair, to the time of the submission to Equiguard, it takes an average of 28 days for contractors to submit the paperwork,” Dikeos says. “Very few claims are submitted in less than seven days. Then the clock starts for us, and it takes us 15 to 30 days to send the payment, with a very consistent history for the past 18 years.”
Rheem dealer Paul Cosner, president, P.A.C. Heating and Cooling, Lakeside, CA, uses warranties through Equiguard, and is happy with his warranty programs.
“I haven’t had any trouble with Equiguard. Rheem backs them, and I’m very comfortable with Rheem,” Cosner says. He suggests contractors take the time to explore every available option to grow their businesses, which includes using more extended warranties.
Eliminate Customer Misunderstanding
Gary McElwee says contractors must explain warranty language thoroughly to customers, or they’ll be disappointed when their systems breakdown due to various service facts of life.
“We have to tell customers that the extended warranty doesn’t cover them in the middle of the night, or Saturday at midnight, as far as labor charges,” McElwee says. “Customers are often disappointed to learn that the warranty doesn’t cover what they thought it would cover. You’ve got to be honest with them: if the motor goes bad, and I don’t have the exact brand replacement on the truck, they’re going to be without air conditioning for a while. I can’t put a generic motor in there and have it work for them. The manufacturer may very well provide a bumper-to-bumper warranty, but the contractor has to use a part or motor from that original manufacturer.”
‘No Hassle’ Experience for Homeowners
From the customer perspective, the ideal warranty programs are those in which the homeowner is taken out of the claim process, and everything’s taken care of for them.
“For example, a contractor will sell a warranty contract to a homeowner, and call it the ‘Smith Family HVAC Warranty,’ so as far as the customer is concerned, they’re dealing directly with that contractor,” Dikeos says. “When the contractor has a claim, they submit it to Equiguard and don’t charge the homeowner anything. The contractor is able to give the homeowner a 100% satisfaction guarantee, which helps create the ‘perfect’ homeowner experience. However, the contractor needs to take the time to understand the program. We pay 100% of the claim to a contractor, but they have to know what to submit,” Dikeos says.
Reduced Business Liabilities
If an HVAC contractor/business owner plans on someday selling the business, it’s preferred that the company itself not be solely responsible for active warranty policies.
“If you’re self-insuring your installations, you have all of those policies hanging out there, that will be viewed as a financial liability,” Dikeos says. “With a third party insurer, the person buying the business sees that you have some guaranteed revenue that’s going to come in beyond the sale of the business, and there’s no liability.” It’s for that very reason that self-insuring is not recommended or permitted in some states, and why it’s important that contractors find an insurer who is audited annually, and re-insures its policies.
“Equiguard re-insures every warranty through AIG or Assurant, and we’re audited at a minimum of once every year, and we carry no risk on our books,” Dikeos says. “We don’t insure them with a small firm with a questionable future. If Equiguard were to go away, the insurance company is responsible for paying claims, adjudicating, and setting up 800 numbers for claim assistance.”
Labor Coverage Available
The standard original equipment manufacturer’s (OEM’s) warranty is typically a parts-only warranty, and Dikeos says contractors should consider an extended version, provided by the OEM or a third-party provider. “Whichever best fits the contractor’s business model,” Dikeos says.
Responding to another contractor concern — that warranties lock them into a specified labor rate — Dikeos says different accommodations can be made for varying contractor hourly rates, including “flat rate” service providers.
“Much like with auto insurance, those who want to get paid more on a per incident basis will pay more. Based on the same principle, we can go quite high, and accommodate most business models,” Dikeos says. “There are very few contractors we’ve turned down because their rate is too high.”
Speaking to the subject of labor allowances, Lisa Townley says ICP has heeded contractor concerns.
“Dealers have told us that receiving a labor allowance when a replacement warranty is offered to the homeowner is a big benefit to the dealer. That’s why ICP offers a generous labor allowance for the entire length of the “No Hassle Replacement” limited warranty period,” Townley says.
Become a Warranty ‘Know-it-All’
Contractors, then, should review what they do and don’t know about using product warranties:
- Are you aware of the advantages extended warranties offer to you and your customers, and do you present them as product benefits in sales presentations?
- Is your warranty provider audited each year, and do they re-insure their policies?
- Do you submit claims on a timely basis, to ensure you receive faster payment? Knowing all that extended HVAC warranties provide will help you generate sales now, and eliminate scrambling for answers later.