Offering a $5,000 warranty on a $50 product sounds insane, especially when you know plenty of customers will take you up on it. But for Matthew Smith, whose shoe company has honored that warranty for nearly a decade, that gutsy promise was the smartest move he ever made. Shoes For Crews, which is based in West Palm Beach, Fla., and has 160 employees, makes work shoes that are guaranteed not to slip. It was a blip in the industry before offering its gonzo warranty, which covers medical expenses and workers' comp costs. Last year, the company took in revenue of more than $100 million.
Offering refunds to unhappy customers is as old as selling itself. But the supercharged guarantee offered by Smith is something new. Advertising insiders call it "risk-reversal marketing," and it's a lot different from simply refunding the purchase price. The idea is to think about what a potential customer's biggest fear is about doing business with you, and assume some or all of that risk yourself. Virtually every industry offers such guarantees now--from parts suppliers that pay cash for late deliveries to consulting firms that collect only if clients meet performance goals. "It's a powerful way to set yourself apart," says David Frey, president of Marketing Best Practices, a consultancy in Houston.
Smith's guarantee helped get Shoes For Crews out of a serious marketing quandary. For years, the shoes, which cost between $20 and $75, were sold mainly through payroll deduction plans, in which employers would deduct the cost of the shoes directly from workers' paychecks. But workers also could buy them directly from Wal-Mart and Sears. Smith somehow needed to convince factory and restaurant managers to market his shoes to their employees. But it was tough getting managers to care about where their workers shopped.
Yet those managers cared immensely about preventing injuries and workers' compensation claims. So Smith began promising managers that if a worker slipped while wearing his shoes, Shoes For Crews would help pay the claim. A decade after launching the program, nine of the 10 largest restaurant chains in the country either buy the Shoes For Crews brand for their workers or urge them to do so.
The challenge in any risk-reversal marketing program is to eliminate your customers' fears about doing business with you without taking on unmanageable liability yourself. Smith, for his part, knew slip injuries involving his shoes were unlikely. And he rolled out the risk gradually, starting with a $500 cap and moving up to $5,000 eventually. But he does pay. Last year, Shoes For Crews honored several hundred claims--ranging from a few hundred dollars for an ambulance ride to $5,000 for an accident involving broken bones. Smith considers it a cost of doing business. "Paying $15,000 a year on a $2 million account is nothing," he says. Besides, he adds, it's almost worth it to hear the shocked gratitude in his clients' voices when he honors the promise.
Kurt Leisure, a vice president at the Cheesecake Factory, a chain of 97 restaurants based in Calabasas, Calif., encourages all 25,000 employees to buy their shoes at Shoes For Crews and nearly all of them do. That's about 30,000 shoe orders a year. Leisure says he would be a fan of Shoes For Crews for safety reasons alone; the shoes, he says, have helped the chain cut slip accidents 87% over five years. But he doubts he would have done business with Smith in the first place if not for the guarantee. "The warranty is obviously a big incentive for us to get as many employees as possible into their shoes," says Leisure. "It's very shrewd business on their part."
A warranty is a powerful sales tool. Here's how to get it right:
Resources Consultant David Frey's book, The Small Business Marketing Bible, has a section on using guarantees for competitive advantage. To read one of Frey's articles on risk-reversal marketing, go to businessknowhow.com/marketing/guarantee.htm