The Danger of Selling Service Contracts

The other day I was in my local electronics store and during the transaction the salesperson asked me if I wanted to purchase a service contract. I politely declined. Have you noticed how many companies sell service contracts for their products or service?

Many Companies Use Service Contracts
Some of the companies using service contracts are automobile dealerships, appliance stores, heating and cooling contractors. These are just a few of the companies that offer service contracts. There are many more.

Pros and Cons of Using Service Contracts
There are two schools of thought on service contracts. The first is that it gives the customer the opportunity to buy added protection against potential defects in the product or service that the company is selling.

The second school of thought is that service contracts are not necessary. They are simply an excuse for sloppy workmanship and at the same time very profitable for the company selling them. The one who loses is the customer.

The late Ron Zemke, one of the most respected individuals in the field of customer service training and development, believed that the future will bring a trend for people to buy only products which are unconditionally guaranteed. Consumers will be unwilling to tolerate the service contract mentality.

It’s my opinion that companies should unconditionally stand behind the products and services that they sell. They should not try to charge the customer more for a so-called “service contract.” Yes, from time to time a product will fail or a service will not live up to a proper standard, but that is where a solid guarantee is so important.

People Want Quality and Service
However, rather than charging the customer more money for a service contract, why not just give them what they paid for in the first place? The companies and organizations that will be most successful will be the ones that set the pace in this area. People want quality and service that they can depend on without having to pay for a service contract. The point I’d like to make is that most businesses (including new car dealers) should guarantee great service and full satisfaction without customers having to buy a service contract.

Service contracts simply don’t make sense for the consumer. The company that implements a strategy guaranteeing unconditional quality and service at no extra charge will demonstrate to its competitors that this approach can be a key factor in keeping customers loyal indefinitely and the operation profitable and successful.

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Tom Borg is president of Tom Borg Consulting, LLC. He is a business consultant, speaker, coach and author. He helps companies and organization become more profitable by increasing their value and lowering their costs through the professional development of their managers and employees.