The warranty pitch
Most of us are familiar with the warranty pitch we get when we purchase something like a printer, a TV or a new refrigerator. The companies that sell these products have spent a lot of time and money running stats to figure out that financially, warranties work in their favor.
Yes, companies end up replacing products for warranty holders, but they also have the data that shows them the purchase of warranties far outweighs the number of faulty products they replace. Add to that the fact that many consumers these days view the offering of a warranty as another selling feature for the products they select. The same is true with eyewear. It’s a breakable product and consumers value ‘peace of mind’ with their purchase.
When you select and carry quality eyewear lines, you should come to a similar finding in your practice. In-office statistics on those products will show that the number of frames that stand the test of time far outweighs the number that break. Track your breaks by brand, type of break, frequency and cost. Use this information to replace underperforming frame lines with products you can stand behind.
Making strategic decisions on your in-house warranty program is the best way to serve patients well while being conscious of your bottom line.
What should my warranty cost?
This is an ongoing debate in the optical industry, and ultimately it comes down to knowing your market and your personal preference. One way or another we all ‘charge’ for a warranty. The decision you make is where the charge is placed and how it’s presented. In Part I of this series on developing your own in-house frame warranty we will focus on the options you have in charging for an in-house frame warranty.
Option 1: Charge ‘nothing’ for your frame warranty
If you decide not to charge patients a fee for their warranty, then you have to make sure you price your products accordingly. If your normal frame markup is 2.3 times wholesale, then consider adjusting to 2.4 times. This small increase in all the frames in a line you sell will help to offset the cost of the one or two frames in that line you end up replacing.
Take a frame that has a wholesale value of $50 and you buy 20 pieces in that line. Your normal markup is 2.3 times which prices that frame at $115, but instead you markup 2.4 times and price it at $120. With those 20 pieces, you’ve built in a $100 ‘warranty cushion’. As long as you’re carrying quality frame lines, you could replace two of those original twenty and remain in the clear. You will find that with quality eyewear lines the statistics will be in your favor for a breakage rate of under 5%. Again, track stats and make decisions accordingly.
Building warranty costs into your frames prices make for a very pleasant overall patient experience. Think about this scenario: “Mrs. Jones, the frame you bought today comes with our exclusive worry-free frame warranty. If your frame breaks anytime over the next year, you can rest easy because we’ll gladly replace it for you at no charge.” The patient doesn’t have to worry about fees associated with their warranty. They leave your office feeling as if they made a great selection in purchasing from you because you fully stand behind your products.
Option 2: Charge for warranties at the point-of-sale
The flip-side to Option 1 is keeping your prices where they are and instead charging patients for their frame warranty at the time of the sale. This is the approach of the big box electronics stores offering warranties as an ‘add-on’.
The advantage to this approach is that you’re taking care of the warranty expense on the front end by collecting your replacement margin at that time. This approach to in-house frame warranties can be very rewarding to the practice as the sale of warranties can quickly turn into profits. If you charge $25 for a one-year frame warranty, sell 20 of them and have one patient utilize their warranty, chances are the $500 you made in warranty sales will more than cover the replacement of that one broken frame.
Be mindful with selling warranties at the point-of-sale. If you’ve experienced this in Best Buy lately then you understand why. It can alter patient perception of their purchase and create more stress during their experience.
Also, consider that this approach might create somewhat of a customer service conundrum when a patient who did not elect to purchase a warranty comes in with a broken frame. On the one hand, they chose to forgo the warranty when they bought the frame so they rolled the dice and lost. On the other hand, do you really want to get into an arm wrestling match with a patient (especially a loyal patient)?
Option 3: Charge for warranties at the time of usage
Another approach in charging for a frame warranty is to collect the fee at the time of usage. Patients only pay a warranty co-pay in the event they need to use it. When you first hear this you may pause and say, “But you’ll only be extending warranties to people who are using them…you’re going to lose money”. Maybe, maybe not.
Statistically, lower quality frames will break more frequently when compared to higher-end lines. Use that fact to set your warranty fee. Say you set your warranty co-pay fee at $50. Over the course of 6 months, you have five patients come in and use their warranty for frames that you paid $40 for and you have one patient come in and use their warranty for a frame you paid $75 for. You spent a total of $275 on replacing those products and collected a total of $300 in warranty co-pays. With carefully considered warranty fees, this method can also work.
Charging for a warranty at the time of usage can be a great system. The key to this method is clear communication with patients on the front end at the point-of-sale. Be sure to inform patients how your warranty program works and that there is a fee associated should they have to use it. Most patients will be pleased with this because they get the peace of mind in knowing they have the option for a warranty should they ever need it, but they’re glad to not be sold another add-on at the time of purchase.
This approach also allows you the option of being a customer service hero at times. Because you are waiting until the time of usage to collect the fee, you can choose to ‘waive’ the fee for patients as a bonus when appropriate!
Pick the option that works for you!
We all practice in different ways and in different markets. What works for one might not be the best option for another. Offering an in-house frame warranty is a great way to serve your patients well and to add value to your optical. Get to know your optical really well, track stats, and develop a warranty program that works for you!