How to do guarantees right. And how we grew a business by 49% by adding a guarantee.
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A guarantee can be powerful.
Like a chainsaw.
Used right, it can cut through customer objections.
Used wrong, it can cut through profits.
This case study reveals what’s possible when you do it right. It describes how we made Australia’s largest computer-repair service even larger. We have done many things to grow Geeks2U‘s profits. The following experiments describe the work we did on its guarantees, which alone grew sales by 49%.
When (and why) do guarantees work?
Guarantees don’t always increase sales. To understand when a guarantee would help, consider the two major functions of a guarantee:
Function 1: A guarantee reduces the risk for the customer. If the company doesn’t fulfill the guarantee’s promise, the customer is compensated.
Function 2: A good guarantee self-evidently promises that your business will be harmed if you don’t honor your claims. It effectively says, “Our promise must be true. Otherwise we wouldn’t be in business.” It thus acts as a kind of proof.
Many people underestimate the importance of Function 2.
So guarantees are effective when…
- the visitors want what the company is promising,
- but they are nervous about the risk, or are skeptical about the claims,
- and your service does live up to its claims.
A guarantee would not be effective for a hot-dog cart, because visitors aren’t nervous about wasting a few dollars on a hot dog. And hot-dog carts don’t make claims that make visitors skeptical.
However, if a hot-dog cart were to claim to sell “the best hot dog you’ve ever tasted,” then a guarantee would help to overcome the prospects’ natural skepticism. And if the cart were to increase the price of its hot dogs to $10, a guarantee (such as “$10 for the best hot dog you have ever tasted—or it’s free”) would help to reduce the customers’ risk, and therefore increase the sales.
How (and why) we implemented a bold guarantee for Geeks2U
We have more-than-doubled the sales of many companies. For each of them, we began by understanding the psychology of its visitors. On this project, the breakthrough came when we started to ask our Golden Questions to Geeks2U’s customers, using several tools including Qualaroo, FluidSurveys, and Hotjar.
Geeks2U’s customers said they loved the following aspects of Geeks2U’s service:
- The outgoing and friendly technicians.
- The speedy service.
- Their ability to fix their customers’ computers right first time.
Plus, Geeks2U’s Net Promoter Score (a measure of customer satisfaction) was one of the highest we’ve seen.
There was no guarantee in writing, but in the rare instances when a customer was unhappy, Geeks2U would always do something about it.
Test 1: Adding a guarantee
So we created a guarantee—not out of thin air, but as a formalization of the great service that Geeks2U was already offering.
Our guarantee encapsulated those features of the service that we knew customers cared about. We A/B-tested the guarantee using Optimizely, and the page with the guarantee generated 11% more orders:
See how the guarantee is much more than a get-out clause. It’s a promise.
However, in the same test we included an alternative variation of the guarantee, one that was more specific and prominent. This version beat the one above, increasing sales by 21%:
Test 2: Improving the guarantee—by making it more concise and striking
The previous test confirmed that we were barking up the right tree. So we knew that the new guarantee was a “conversion lever.” Once you have found a “conversion lever,” pull it harder. (For further details about this, see “Mistake #2: The “Cinema Foyer Effect” in this article.)
So we iterated upon the guarantee, to make it even stronger.
The following heat map reveals one of the reasons why the guarantee worked: It was one of the most looked-at elements on the page.
We designed a new variation that distilled the previous winner into a single, powerful sentence, supported with a simple visual:
This new guarantee resulted in 24% more conversions—an overall improvement of 49% over the original “guarantee-less” page. Notice that the winning guarantee takes the form of a positive promise. It doesn’t say, “If you dislike our service…”; it says, “We guarantee that you’ll love our service.” The most common mistake with guarantees is to word the guarantee negatively—as a “get-out clause”—rather than in positive terms, as a promise.
Since we began working with Geeks2U, its sales have increased so much its call center has outgrown its premises.
A 9-step checklist for implementing a guarantee safely
Is your company hesitant to offer a bold guarantee? That’s understandable. A guarantee can do harm if it’s implemented badly. Also, with guarantees the feedback loop is long, because you can’t calculate the costs of invoked guarantees until after the guarantee period has expired.
The following workflow provides a low-risk way to implement a bold guarantee:
- Create the guarantee, based on the principles described above.
- Carry out scenario modeling, as follows: Create a table in which the columns represent different values of “Uplift in conversion,” and the rows represent different values of “Percentage of customers who invoke the guarantee.” Then work out the net change in profit for each combination. Also consider how guarantee claims would be handled operationally (accepting returns, restocking shelves, issuing refunds, etc.). If you are satisfied that the guarantee will generate additional profits, then proceed to the next step.
- Run the guarantee as an A/B-test for a short time—for just a few days, if that’s all the risk you can bear.
- Wait for the guarantee period to expire.
- Calculate the increase in profits, based on the measured uplift in sales.
- Calculate the cost of people invoking the guarantee. In our experience, the invocation rate tends to be lower than companies expect, sometimes by an order of magnitude.
- If you need more data (which you probably will), return to Step 3 and run the guarantee for longer. By doing this in small increments, you remove the risk caused by the long feedback loop.
- If you do have enough data, and the increase in profit more than offsets the cost of returns, make the guarantee permanent.
- Return to Step 1, creating a bolder guarantee.
The most fruitful activities you should be engaging in
We’ve had wins from many types of guarantees: price-match guarantees, satisfaction guarantees, payment-deferral guarantees—even weather guarantees. The wins typically come from three activities:
- Creating a guarantee for a company that doesn’t already offer one,
- Improving the wording of a guarantee (some guarantees should be compact, and some should be long)
- Placing the guarantee at the right moment in the conversion flow.
If your business is suitable for a guarantee, those three activities are likely to be effective for you.
A few words from the Managing Director of Geeks2U
Here’s a short video in which Geeks2U’s Managing Director, David Hancock, briefly describes what it’s like to work with us.
Our methodology requires a team effort. And Geeks2U has one of the best teams we have ever worked with. The team members are willing to test everything (even a risky guarantee). They are fun to work with, and they are fast at implementing ideas.
Another case study: The boldest guarantee we have tested
While we are on the subject of guarantees, you might be interested to hear about the boldest guarantee we ever tested. It was for Mobal, a telecoms company that sells phones for international travel. Previously, using financial modeling, we had correctly identified that Mobal could make huge profits by selling each phone at a subsidized price, and then making all of its money from subsequent call charges. So each time we sold a phone, we made a significant short-term loss. Offering a guarantee on such an offer might have sounded reckless.
Because the stakes were so high, we carried out a scenario analysis. It forecast that a guarantee would be likely to increase the overall profits, even taking into account the costs of servicing the guarantee. (This is where it helps to have a Cambridge Ph.D. scientist on your team.)
Fortunately, our modeling paid off. We tested a 60-day satisfaction guarantee—which was even longer than the average customer’s trip. The conversion rate rose, and the return rate turned out to be much lower than our safeguards had allowed for—so the guarantee was a huge success. Before long, the conversion rate was so high, Mobal was able to invest profitably up to a quarter of a million dollars per month in offline advertising.
Here’s a short video in which Mobal’s Alistair Scott describes the impact we had on Mobal’s business:
Could you use more case studies like this?
If you would like to see more of our clients’ results, you can find a long list at our “Clients and Results” page.
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