This document outlines the differences between a guarantee and a warranty. A guarantee is a free, legally binding promise to fix defects within a set time period. It must clearly explain how to make claims. A warranty is an optional insurance policy that covers additional problems or longer periods, but must be paid for. An effective service guarantee should be unconditional, contain important customer elements, be easy to understand and invoke, and add to consumer rights. Examples include refunding payments for unhappy clients or compensating with miles if a new seat design is not more comfortable. A guarantee is not suitable if quality is already poor, the image does not fit, or the firm has a good reputation without one.

1. Service guarantee

2. Difference between Guarantee and
Warranty
A Guarantee
Is usually free
It's a promise to sort out any
defects with a product or service
within a fixed period of time.
It's a legally binding contract,
even if you didn't pay for it.
It must explain how to go about
making a claim in a way that is
easy to understand.
It should add to, not take away
from, your rights under
consumer law.
It works whether or not you have
a warranty.
A Warranty
• A warranty is like an insurance
policy that you must pay a
premium for.
Sometimes it's called an
'extended guarantee'
It might cover a longer period
than a guarantee, and it might
cover a wider range of
problems.
A warranty is a legal contract, so
you can take the company to
court if they don't honour it.
The terms of the contract should
be clear and fair.
Having a warranty doesn't
diminish your rights under
consumer law.

3. Characteristics of an effective
service guarantee
• Unconditional guarantee – promise
should be made without any
conditions.
• Guarantee should contain elements
that are important to customer
• Guarantee should be easy to
understand and communicate
• Easy to invoke and collect

4. examples
• If clients are unhappy they do not pay for
the services.
• FedEx guarantees package delivery by a
certain time
• British Airways introduced a new seat
design in first class, BA advertised
“Comfort guaranteed – or you get 25000
miles”.

5. When to use or not use a
guarantee
• A guarantee is not the right strategy when
• Existing service quality in the firm is poor –
the firm has to fix the quality problems first.
• A guarantee does not fit the company’s
image
• If a company has a good reputation, then a
formal guarantee is unnecessary.
• Guaranteeing that early morning flights in
winter (fog)
• Potential for customers to cheat
• Costs of the guarantee outweigh the benefits

6. • A guarantee is effective when the quality
varies among competitors.
• The first firm with a guarantee can
distinguish itself from competitors.