Returnalytics: What is a Warranty Return and What Impact do They Have on Your Ecommerce Business?
About the Episode
The Returnalytics podcast discusses the latest retail trends, technology, and best practices for managing an ecommerce business and retail returns.
In this episode, we tackle a hot topic in ecommerce retail:
Warranty and Third-party Warranty Returns.
As an ecommerce merchant, your brand needs to stick by its products, whether you sell them on your ecommerce site or elsewhere.
Product warranties help show that you believe in your product and that you’re willing to fix something if it goes wrong. With so many packages being sent out and returned, things are bound to happen.
Listen in as we discuss what is a warranty return, why the warranty market has grown so much in the last decade and how ecommerce merchants take advantage of offering warranty returns to stay competitive and top of mind in the shopper’s post-purchase journey.
Listen to the full episode on Spotify or get the summary below.
About the Speakers
Travis is a Product Marketing Specialist at ReturnLogic. Travis graduated from Shippensburg University with a Bachelor of Science in Supply Chain Management & Marketing. Travis has been working for ReturnLogic for over 2 years and started out as a Customer Support Specialist before working his way into Product Marketing.
David is a Senior Growth Manager at ReturnLogic, previously working as a Product Marketing Manager. David has prior startup experience formerly working at Drip and WhenIWork. He works closely with the Product, Sales, and Marketing teams at ReturnLogic to act as the voice of the customer and how to understand the ecommerce market.
Travis Farey – 0:00
Hi, I’m Travis Farey and this is the returns management podcast by ReturnLogic; a show where we connect ecommerce store owners together through casual discussion and examine current myths and trends to keep you up to date on everything happening in the ecommerce world.
On today’s episode we’re covering everything warranty. First, we’ll define what a warranty is, talk about the warranty market and why it’s becoming so popular, touch on why warranties are important to shoppers, and much much more on today’s episode. So, stick around. My name is Travis Farey and I am a Product Marketing Specialist here at ReturnLogic and today I am joined by David Gonzalez Senior Growth Marketer here at ReturnLogic.
So without further ado, let’s get this show started.
As always, let’s start off by defining what a warranty is.
David Gonzalez – 1:12
Isn’t a warranty that thing those robots keep calling me about. Those robots are very concerned about extending my cars warranty coverage.
Travis Farey – 1:20
Oh Man, don’t, get me started. I get at least two to, three of those calls every day and that’s the reason that people cringe just by hearing the word warranty.
David Gonzalez – 1:30
And it’s really a shame because the word warranty now like almost a stigma to it. Could you imagine being an actual human being who has to sell extended warranties for cars?
Travis Farey – 1:41
No, I couldn’t imagine that’s got to be super frustrating and people are probably hanging up on you all the time. But let’s just say it’s a lot easier to sell warranty software to Shopify stores.But, you know, let’s get all these robo calls off our minds and let’s talk about how warranties can actually help us out.
So, a warranty program or sometimes called a product protection plan is a service contract that protects shopper products from certain damages or accidents. At its most basic, a warranty is really just a promise that you’re making to your shoppers about a particular item. So like how long it’s supposed to last or what condition it’s supposed to be in when you receive it.
And as an eCommerce merchant, your brand needs to stick by it’s products. So that’s whether you sell them on your E commerce site or whether you sell them elsewhere.
David Gonzalez – 2:36
Travis Farey – 2:38
Oh Yeah, it’s becoming more and more common of eCommerce retailers to sell their products on multiple channels. And that’s where third-party warranties are introduced. Third party warranties are becoming a lot more popular. And what they do is allow brands to accept warranty claims on purchases that are made outside of their eCommerce site on places like Amazon or eBay or Best Buy. I mean, you name it. And what this does is really takes most of the work out of the merchants hands.
But now that we’ve discussed, you know, what we need to know about warranties, we’ve introduced third party warranties, and we know what both of those things are, let’s touch a little bit more on why the warranty market has expanded so much and why it’s become so popular.
Omnichannel Commerce and Third-Party Warranty Returns
David Gonzalez – 3:26
For Sure. So, the question is why has the warranty market expanded so much? And when you look at the warranty market, it makes a lot of sense.
So, Allied Research just released some numbers saying the global extended warranty market size was valued at 123 billion in 2021. And not to mention it’s projected to reach 275 billion by 2031. So, with the rise of companies like Clyde, Mulberry, Extend, these all make it easy for Shopify stores to add warranty program to products.
So, when you see those kinds of numbers, it really makes you want to hop on board. And a lot of different verticals are starting to offer warranty programs that might not have before.
Travis Farey – 4:09
Yeah, that’s a great call out. And I know we’ve touched on how warranties have been negatively associated with someone calling you about your, you know, extending your cars warranty. But the thing is, car warranties no longer rule the warranty market. And here at ReturnLogic, we’ve seen a lot of different verticals use warranty programs as a competitive edge.
Some of the verticals we’ve seen are glasses and eyewear, electronics, jewelry, sporting equipment, we’ve even seen socks, you know, CBD and vapes, and the list goes on and on, and you know, you just discussed some of the numbers in the market and its high numbers, high growth in this market. So, it really does make sense for retailers to hop on the warranty train. But why are these numbers growing so much, and why are warranties so important to shoppers?
David Gonzalez – 5:03
Warranties help show that you believe in your product as a brand and that you’re willing to fix something if it goes wrong, so it establishes that trust. And this is especially important in eCommerce because consumers that shop online particularly for expensive products, they need to feel confident that they’re making a smart purchase. There’s nothing worse than ordering something online, getting it and having it not meet your expectations.
Travis Farey – 5:27
Yeah. The only thing I can think that’s worse than that is when you order something online and then you absolutely love it. And then a week or two down the road, something happens to it, and you try to claim your warranty on it and you either can’t or the process is just unnecessarily long.
And so now you’re feeling left uneasy about the whole experience and you’re lacking that product that you genuinely enjoyed. What warranties will do is show your shoppers that you’re willing to make things right, when they inevitably go wrong. Imagine how many packages are being sent out and returned in a single day. Things are bound to happen.
David Gonzalez – 6:07
Exactly, which leads us to an important question which is how are warranty request or warranty returns traditionally managed for Shopify stores?
Travis Farey – 6:16
Yeah. So traditionally warranties have been handled manually on paper or spreadsheets, and they’ve also been separate from other return types because no other solution has existed to this point.
David Gonzalez – 6:28
So, merchants have two different programs, two different workflows for shoppers, and have separate pages on their website for warranties specifically?
Travis Farey – 6:36
Yep. And what that does, is it silos that data and it makes the shopper experience and the merchant experience worse off.
David Gonzalez – 6:45
Sheesh. Yeah, and not to mention, I imagine support teams are left having to sift through emails and phone calls to process each request, you have to log each warranty request in a spreadsheet or maybe their ERP, update their inventory and ultimately, they still have to resolve this issue.
On top of that, merchants don’t have that visibility into why warranty claims are happening. They don’t have visibility into damaged product trends, effective products, et cetera. So basically, they’re flying blind. They’re losing money and losing customers and they have no idea why.
Travis Farey – 7:18
So, David, why do you think that people usually manage warranties differently than their other return types?
David Gonzalez – 7:24
Yeah, it makes a lotta sense when a customer puts in a warranty request, they don’t actually want to return the product, they just want their issue with it fixed as opposed to other return types like refunds, exchanges, store credit, where the customer’s intention is to give the product back because they’re unsatisfied with it. So, I guess the real question we’re trying to answer is why is separating warranties from other return types the wrong choice?
Travis Farey – 7:50
The simplest answer here is that while the customer may not actually want to get rid of the product, handling a warranty request looks very similar to handling other return requests in that both indicate that something is wrong with the product, they require getting information from the customer about the original purchase, and they need a system for reverse logistics in place to funnel those products backwards through the supply chain.
So, putting warranty request in a category separate from your other return types actually forces you to form two separate workflows and double your work. So, two separate systems equals two different places that data stored, double the work and a worse experience for customers. And it’s also harder for your team to manage.
David Gonzalez – 8:40
Yeah, that’s a really interesting way to look at it. And I think to drive the point home, we should dive into the impact that this has on merchants bottom line. So, let’s use some averages here and break it down.
Manually processing a warranty claim takes about 15 minutes on average and costs between, you know, $3.50 to $5 bucks per warranty processed. And that’s just the labor costs that’s not taking into account shipping costs, replacement cost, cost due to churn, cost of fraud, lost out future CLV. So, in short, it’s incredibly expensive.
Travis Farey – 9:15
So manually processing warranty request clearly has an impact on the bottom line. But what do merchant stand to gain from having one system to handle warranties, exchanges, refunds, and store credits?
David Gonzalez – 9:28
Yeah. Well, first off automating warranty returns and offering warranties as a return type, has proven to affect customer behavior by dropping refund rates by as much as 30 percent, showing that customers want to keep their purchases if they’re given the choice to get their problems solved. So said another way, the average refund rate is usually around 80 percent if handled manually. Offering warranties as a return type, drops that refund rate from 80 percent to 50 percent.
On top of that, offering warranties on average leads to doubling your average order value, which means higher customer lifetime value since those shoppers aren’t choosing their refunds. And lastly in addition to that, automation and forces legitimate request and decreases fraud, which also protects your bottom line.
So how do we know all this? Where are all these numbers coming from? In the last three or four years or so, we processed what over a million-warranty requests and that number is going up by like 2000 percent every quarter. So, Travis did I miss anything there?
Travis Farey – 10:34
No, I think you said that perfectly. The only other thing I can stress is it’s super important to know what’s going wrong with your products. The number one reason for warranty claims is due to damage or defect. So, looking into your returns data will allow you to improve your products which reduces the amount of warranty claims in general. That means less products coming back and more money in your pocket.
Remember your data is gold. The more you’re able to understand why things are going wrong, the more proactive you can be and the better it is for your business. So, knowing why something is wrong is the first step, but then knowing what you can do about it is the thing that gets your business to the next level.
David Gonzalez – 11:18
So, if you do want to automate warranty returns and have it all in one system, what should you including your warranty return policy for your shoppers?
Travis Farey – 11:26
Yeah, that’s a great question. So, to create a successful warranty return policy, there’s some specific details that you need to include so that your shopper knows what is covered or vice versa, what’s not covered by their warranty program.
Some of these things include whether you’re willing to replace, repair, or give a complete refund for the shopper’s item, and then whether the shopper must pay for shipping or any other costs. The next thing would be the length of time that the warranty covers the product from the date of purchase. So, is it a six-month warranty, a one-year warranty, and so on. And lastly, you need to include what the warranty does not cover. So, damages that may be caused by improper use, if you specifically say that your product can hold up to 50 pounds, and somebody was trying to carry 100 pounds with the product, you know, that can be considered improper use and wouldn’t be covered under the warranty.
David Gonzalez – 12:25
For sure. And in that same vein, shoppers want to go through the workflow that works best for them, so they don’t always want to chat in or email support teams, they may just want a self-serve option. So, automation is incredibly important here and giving shoppers that choice. But what are some good examples of companies who do this well?
Travis Farey – 12:43
Yeah. I think the first one that comes to mind is Groove Life’s No BS, 94-year warranty policy. I think that just phenomenal. And it’s also just so unique compared to all the other warranty programs out there.
David Gonzalez – 12:57
Man, I love Groove Life. So, I lost my Ironman ring one time (don’t judge me) and I got a new one in a few days without even talking to a rep. And I guess another one that really stood out to me, was goodr like I love those sunglasses. They just stick to your face and their brand is just so fun and it’s like flamingo or something. But their program is real solid and it’s really good. And even if you lose something if you lose a pair of sunglasses in the lake if you scratch them or whatever they’re on top of it. And they’ll get it back to you, I think I got mine and like three days, which is insane.
Travis Farey – 13:28
Yeah. Both of those companies are great examples. They both have great brands, great products, and a great post purchase experience. But those two companies are only two examples. And there’s a ton of other good ones out there.
David Gonzalez – 13:41
Yeah, absolutely. So, tons of companies do this really well and we’re seeing more and more companies with good warranty programs popping up every day. So, this challenge is only going to get bigger and it’s best to get out in front of it earlier.
Travis Farey – 13:55
Well said David. The realization we need to come to here is that the online shopping journey is different from the one that retailers have been used to for generations. And because of that, the way to approach gaining customer loyalty has also changed. Returns were traditionally seen as an indication of failure in brick-and-mortar retail, but they can actually be leveraged as a major marketing tool in eCommerce. What’s even more surprising is that offering warranty returns affects customer behavior in a way that it never has before. So, knowing the facts can help retailers leverage their warranty policies and workflows to ultimately increase their average customer lifetime value.
So that’s all we have for today, folks. And I want to give us special things. The David for joining me on today’s episode and we’ll see you guys on the next one.
Travis Farey – 14:55