The Hidden Costs of Poor Warranty Management for OEMs

For OEMs, warranty is a critical function as it directly resonates with their brand's reputation and customer satisfaction, and impacts the overall profitability and long-term growth. Such criticality cannot be ignored or overlooked and OEMs need to implement measures to streamline their warranty management processes. Poor warranty management impacts not just the bottom line of the company but also the trust their customer put in their products.

In addition to this, it can also have a negative impact on their overall market position. If an OEM provides an efficient warranty but is incurring heavy costs, it is going to impact profitability. Measures will be taken to reduce these costs which will eventually have an impact on the warranty management process and customer satisfaction.

In this blog, we will discuss how poor warranty management leads to hidden costs incurred by OEMs and things they cannot ignore.

1. Increase in Financial Liabilities

When the warranty is not managed efficiently, there can be huge costs incurred by the OEMs. In such cases, there can be higher claim payouts, and duplicate claims, and stakeholder collaboration and communication are also hampered. These factors can lead to an increase in repair and replacement processes. Even in cases of longer wait for repairs, the time lost is equivalent to loss of revenue. The loss in customer satisfaction would lead to a lower market share of the products and reduced sales.

2. Brand Reputation is Impacted

We all understand that for any manufacturer, customer satisfaction is directly linked to their brand reputation. Poor management of warranty claims would mean a claim is not initiated on time, there are duplicate claims, the percentage of fraudulent claims is higher or the customer communication channel is not adequate. In these situations, customer satisfaction is directly impacted. If the wait times for repair or replacement are higher, the brand reputation will be impacted as the customer wouldn’t appreciate such high wait times. In cases of repair or replacement not functioning efficiently, customer satisfaction is also impacted. In addition to all this, the retention rates of customers are highly reduced in these cases and OEMs might encounter higher refund or cancellation rates.

3. Loss of Productivity and Inefficient Operations

In cases of poor warranty management, the process is highly unorganized which leads to multiple redundancies that would ultimately reduce the operational efficiency of any OEM. A domino effect, this can disrupt production, and extend the processing time for warranty claims, and OEMs might also see an increase in manual work. In such cases, there would be a rise in delays for repair or replacement, unaddressed warranty claims, increased labor costs, and increased operational costs. Whenever there is a loss of productivity in operations OEMs would encounter a gap in revenues and profits.

4. No Insights on Product Quality

Without warranty management software, OEMs would have no way to gain insights into the warranty management process. This would lead to a stagnation in growth and higher operational costs. Without insights, OEMs cannot find any scope of product improvements which leads to reduced customer satisfaction and lower sales. In case of repetitive product issues or product recalls the product defects cannot be understood as the warranty process is disoriented. All of this would lead to a rise in costs and a loss of the competitive edge for OEMs.

5. Customer Loyalty and Satisfaction is Reduced

For any OEM to have good customer satisfaction rates, they need to address their issues quickly. In cases of delayed customer response times, the customer loses interest in the company’s products and is highly likely to switch to a different brand. With such a high impact, OEMs will also experience a loss in the customer's lifetime value as there are chances there won’t be repeat purchases.

6. Regulatory and Compliance Risks are Increased

OEMs have to follow strict regulatory and compliance policies laid down by the governing authorities as these processes ensure a streamlined approach to warranty process management. In case of non-compliance, there are high penalties involved which often lead to huge revenue losses for OEMs. When these irregularities affect customer safety, there are high chances of lawsuits which would further lower the financial stability of the company.

7. Reduced Competitive Edge

Today, businesses can be differentiated on the quality of after-sales service. This also includes the warranty management process. A poorly managed warranty process would hamper the competitive edge of an OEM. Customers expect high-quality products and also a trusted after-sales service and support mechanism. If these two criteria aren’t managed well by OEMs, they often lead to reduced market share, low customer retention, and hurt brand loyalty. When a customer issue isn’t addressed properly, it would mean a loss in the competitive edge for businesses.

How Can OEMs Improve Warranty Management?

For any OEM to stay competitive in today’s dynamic market, they need to adopt strategies to improve their internal business functions. When a business incurs high costs of internal processes, the profitability is impacted heavily. Businesses today need to adopt technology and innovation for the betterment of their after-sales services.

Implementing warranty management software is the right way to move forward for OEMs today. These warranty management software solutions help enhance customer satisfaction, improve brand loyalty, ensure profitability, and most importantly, increase revenues for businesses. Warranty is a crucial process for OEMs and deploying warranty management software can do wonders for OEMs.

Such deployment would ensure a streamlined warranty management process, reduced operational costs, increased stakeholder collaboration, enhanced customer satisfaction, and improved brand loyalty.

Our Final Take

Poor warranty management majorly impacts the operations and revenue generation capability of a business. There are losses in operational efficiency, no oversight on product quality improvement, and increased costs for warranty management. Investing in a warranty management system would improve the process and also create a cost-intensive function into a profit-making center for OEMs. Improvement in customer satisfaction should also be of the highest priority for businesses and warranty management software enables companies to improve their brand loyalty and eliminate negative impact on customer loyalty.