Distributors have waded into the great warranty debate following a series of warnings to resellers about the plethora of conditions that apply to products they sell.
Under the strain of competitive forces, vendors are increasingly taking a hard line on return authorities (RAs) and the warranty conditions they apply to their products, according to several distributors polled by ARN last week.
While one distributor noted an alarming trend for vendors to use tighter warranty conditions as a route to cost efficiencies in the supply chain another is seeing this accompanied by a deterioration in product quality.
It may well be good news for resellers that federal and state legislation dealing with statutory warranties declares that the responsibility ultimately lies with the manufacturer or importer of a product. However, as pointed out in a letter to ARN from Brisbane reseller Ray Shaw, the bottom line is that the reseller is left facing the disrupted customer and left bearing many of the costs.
The Trade Practices Act and associated state-based fair trading legislation is designed to protect the consumer. It ensures that products and services must meet “the basic level of quality and performance” that would be “reasonable to expect of them having regard to their price and the way they were described”.
It is the manufacturer or importer that has this responsibility. However, the problem for resellers and distributors lies in the administrative cost of managing the issues and retaining customer satisfaction levels.
Managing director of Dicker Data, Fiona Dicker, said that most of the tier one vendors were pretty good in the way they dealt with warranties and dead on arrivals (DOAs).
She said that the “real issues” were the administrative cost burden DOAs and warranty issues placed on distributors as well as the increasing number of problems that there were with product quality.
“DOAs are an administrative nightmare,” Dicker said. “It can take three months to get a return authorisation [RA] from the vendor and you are carrying the cost for the whole time. Plus you have had to cover the cost of generating paperwork to take back the goods. You have all this money tied up and that represents pain for distributors.”
To keep faith with the reseller, reputable distributors have to take a machine back and give the customer a credit.
“It is really quite an expensive process,” she said. “It would cost a few hundred dollars each time for sure.”
Dicker also claimed that there had been a “noticeable change” in the quality of many branded products as vendors were “all trying to drive down the price and the cost of manufacturing”.
“A lot of vendors are now manufacturing in China, the Philippines or Malaysia and the quality is not what it used to be,” she said. “We had 16 DOAs in one day last week and to me that seems like an awful lot.”
Managing director of Ingram Micro, Steve Rust, described the large variation in warranty conditions from vendor to vendor as “a minefield” and “complex to manage” for resellers and distributors alike. Every vendor has different terms and conditions which means resellers have to apply resources to understanding and managing them.
“Most warranties in this industry are 12 months from the date of purchase but the issue is as to when that starts,” Rust said. “Is it when the vendor ships to the distributor, when the distributor ships to reseller or when the reseller sells to the end user?
“If the end user is purchasing something with a 12-month warranty there is no question in their mind as to when the 12-month period starts. You would expect that would fold back through the supply chain and that each tier has the same level of protection but that is not always the case.”
General manager, operations and distribution for distributor TodayTech, Michael Chong, said that some vendors were starting to use warranties as a “controllable cost” which could be “reduced through the use of highly exclusionary or limited terms”.
While this might “reduce short term costs” it could cause “irreparable damage” to a vendor’s brand, according to Chong who added that the exact opposite is also the case.
“Some vendors see after sales and warranty services as a way of differentiating themselves from their competitors,” Chong said. “A consumer friendly warranty policy can become a powerful marketing tool that can draw sales. Consumers are becoming increasingly savvy of these issues.”
Legislation that covers warranties and products being of “merchantable quality” falls into the category of “implied” warranties. Under implied warranties consumers have the legal right to clear title, to receive goods that correspond with the description given, goods which are fit for the purpose and that services are carried out with due skill and care.
Additionally, all levels of the channel also offer what are known as “express” warranties. These are “given voluntarily by those suppliers who choose to stand behind their products or services”, according to the ACCC website.
For example, a local assembler may give a three-year warranty on a product despite the fact that the individual components it has used only come from the manufacturers with 12-month warranties.
Another example would be a “money back, no questions asked” type guarantee and the relevant legislation only requires that these be “honoured” where they are offered.
Managing director of Synnex, Frank Sheu, said that vendors could be categorised into three groups in terms of how they dealt with warranties.
First tier companies tended to fully understand the importance of supplying end-users with “the highest quality of customer support”, Sheu said.
“These companies will understand that if they are not in the position to provide that level of service then they will partner with the channel to extend the same level of service,” Sheu said.
The second category were those companies that sold “industrial” products to the trade, he said. The high end of this group were “competent and committed to customer service”. They didn’t have consumer issues because they only sold to trade.
The third category tended to include “manufacturing organisations” often in Taiwan or China with “an OEM mentality”, Sheu said.
“They are very good at manufacturing and they can produce a good quality product but when it comes to customer service they are not very responsive,” he said. “They are no good at handling spare parts or customer service. Nor are they prepared to leverage channel resources to carry this out for them. They are prepared to sacrifice goodwill and focus on manufacturing costs out of their product.”
Sheu said that the easiest way for resellers to avoid problems with warranties “that can be very expensive” was to deal with reputable distributors and vendors that had an investment in providing quality service to their channels.
“[Resellers] have to understand the trade-off,” he said. “If you are not going to supply tier one products with the associated service then you can’t charge your customers top dollar either. You also have to build the cost of the occasional warranty issue into the price of products being sold.”
TodayTech’s Chong agreed: “My advice to resellers and distributors who want to avoid the pain of dishonoured warranty terms is to pay a little more for quality products from vendors and suppliers of good reputation,” he said. “In the end, the old adage ‘you get what you pay for’ holds true.”
General manager of Toshiba’s information systems division, Ralph Stadus, sees parallel importing as a cause for concern in relation to warranties. With parallel importing of Toshiba product rife, Stadus faces the problem of consumers believing they are covered by the express warranty terms it offers to products that are sourced through its authorised channel.
“The express warranty conditions we offer have become generally understood by consumers but we are only obliged to cover products that we have imported through Toshiba Australia,” Stadus said. “When [resellers] are sourcing product from someone other than one of our authorised distributors, frankly they do so at their peril and they should at least be double checking what warranty is in place.”