Surprising Pathways

Warranty activity at an all-time high! Leading indicator for homebuilding recovery?

I keep up with Eric Arnum's well-researched newsletter, Warranty Week, and their recent findings suggest that warranty claims are at an all time high for home building suppiers such as HVAC, appliances, fixtures and building materials.   Not only are claims at their highest rates but the manufacturers are also anticipating higher costs as most manufacturers in his survey increased their accrual rates.  

Eric Arnum observes "But building activity, or at least the repairs and warranty work that results from building activity, is by our measurement at an all-time high. Chalk it up to labor rate increases, commodity inflation, Chinese drywall problems, currency exchange rate chaos, product quality declines, sunspots, hurricanes, or stimulus spending, if you must. But the fact remains that this select group of warranty providers paid out more in claims this spring than they ever have before."

In late September Warranty Week completed a survey of new home builders that will also be of interest as it was here they "suggested that an upturn in the amount of warranty claims paid by new home builders could signal that a bottom had at long last been reached in that sector".

 

Leading edge customer communications services enhance Shea Homes leadership.

Exciting news regarding the J.D. Power – "Overall Customer Satisfaction Report for 2009".  

BuildServ’s Ownership Guide client – Shea Homes competes in 5 of the 24 markets surveyed in the report.   Shea Homes was ranked highest for Overall Customer Satisfaction in 3 of these 5 markets (Phoenix; Denver and San Francisco) and second highest in the other two markets(Inland Empire, Orange County and San Diego).  

Furthermore, Shea Homes accomplished these ratings 3 of the 5 most competitive U.S. homebuilding markets where BuildServ’s leading edge customer communication services have enhanced their leadership position.

 

"Overall customer satisfaction improves for a second consecutive year, averaging 811 on a 1,000-point scale in 2009, and up 32 points from 779 in 2008. Markets with the highest levels of overall satisfaction in 2009 include Orange/San Diego, Calif.; Sacramento, Calif.; Phoenix, Ariz.; Inland Empire, Calif.; and Tampa, Fla.. In addition, overall satisfaction has increased in 22 of the 23 individual markets that were also surveyed in 2008."

 

Please find the details of the report in the link below.  It also appears that there are other Constellation success stories here too.  These successes include Brookfield Homes, Ashton Woods, John Wieland Homes, Town & Country, Classic Homes, Meritage Homes, and others.  Here is information from the press release.

http://www.jdpower.com/corporate/news/releases/pdf/2009172-natl.pdf  

FTC issues new Opinion Letter that helps warrantors using electronic documentation

The Federal Trade Commission in a February 17, 2009 opinion letter provides additional grounding for use of electronic copies of manufacturer's warranties in certain circumstances in lieu of paper copies for disclosure purposes.  This is an important opinion it that it has the potential to save vendors the significant costs associated with providing the many printed versions of warranties stipulated by the Maguson-Moss warranty act.

Here is the conclusion of the opinion letter that summarizes the how and where electronic copies may be used:

"Based on the broad language used in the Pre-Sale Availability Rule, FTC staff’s opinion is that an electronic version of a consumer product warranty would constitute a “copy” of the written warranty for purposes of compliance with the Warranty Act and Rules.

Moreover, it is staff’s opinion that a written consumer product warranty that is included on a CD, DVD, or on the internal drive of the warranted product would qualify as being “provided with” or as “accompanying” the product. In passing the Act, Congress’s intent was to ensure that consumers receive clear and complete information about warranty coverage pre-sale, and that consumers be able to retain a copy of the warranty post-sale for reference in case of product failure.

In the opinion of FTC staff, those purposes are sufficiently accomplished by providing, in electronic form, a copy of a written consumer product warranty that otherwise complies with the requirements and prohibitions of the Warranty Act and Rules – provided the warranted consumer products include clear, conspicuous, and easy-to-follow instructions on how to access the warranty information provided on the consumer product’s internal drive or on an accompanying CD or DVD and that a consumer can print out a paper copy of the warranty if needed.

Further, consumers who receive your client’s warranties electronically may end up dependent on the copy of the warranty available on your client’s website if product failure occurs, because they may not be able to access the internal drive or portable media. Therefore, if your client changes its warranty, it should keep on its website a posting of printable earlier warranties and the dates they were in effect."

Magnuson-Moss Warranty Act and class-action suit against Trex Company

A recent class action claim by consumers and the legal community is targeting a manufacturer and suppliers.  The issue in this case is the inadequate disclosure of the manufacturer's warranty.  The federal trade commission requires that consumer receive copies of manufacturers warranties during the pre-sale and after-sale with the delivery of the home and products.

The recent class action complaint against the Trex Company alledges the failure to properly communicate the manufacturers' limited warranty to the consumer at the point-of-sale.  One aspect of the complaint filed on 1/13/09 against Trex cites "Trex's failure to assure that written warranties be made readily available for examination by prospective buyers violates Magnuson-Moss Warranty Act - 16 C.F.R 702.3.  The Trex Company Inc. has responded to the complaint by acknowledging isolated quality issues but has rejected the basis of the complaint.

This case highlights the importance of taking additional steps to protect your business from warranty disclosure claims.  For example several production oriented builders organize all their manufacturer's warranties and provide to consumer on a CD-ROM. This is provided in the pre-sale process or at their Design Center prior to contract signing.

Smaller and custom home builders may have more difficulty potecting themselves against warranty disclosure claims since they rely on heavily on vendors to deliver the manufacturer's warranties at pre-sale.  Builders should take a careful look at this process to make sure their buyers receive copies of the manufacturer's warranty in the pre-sale process.  

Also see a new post to this blog regarding a new interpretation by the FTC regarding the acceptability of electronic formats of warranties in lieu of paper copies.

"ManualLabor" - Green Builder Magazine

Learn how you can help consumers understand the value of sustainable practices incorporated in your homes in Jim Hackler's "Manual Labor" article in December's Green Builder Magazine.

"Look to the Gen X and Y and Millennial's to expect electronic communication... builders that leverage it will attract and sell to this highly sought after demographic."

"Rather than spending time writing up its own information....the builder uses plug-and-play marketing materials that Energy Star offers to is participating builders."

"What may be the best environmental move you can make with your homeowner manual is to only offer it on a DVD and/or online."  For more....download here. (note - large file size)

About Jim Hackler, and Green Builder Magazine.

Are homeowner handbooks effective?

Printed homeowner handbooks are an effective tool when used in the selling cycle for managing expectation to help the builder say “no” to uncovered item, manage unfortunate litigation, and setting quality standards.  The big challenge is that the builder representatives do not actively use the handbooks with their buyers.  This requires that the builder’s sales team, closing coordinator or project manager to bring the binder to the meeting to demonstrate how it can be used to access relevant information.

As consumers become more comfortable with mobile information technology your homeowner and warranty management program can respond by including: 

1. Printed materials such as a quick-start home orientation guide and a summary of important maintenance information
2. Detailed information using the web and e-mail based campaigns to inform home-buyers about product care and operation during and beyond the limited warranty period
3. The best results occurred when builders e-mailed homeowners seasonal reminders and tips.....referral rates in communities were twice what they were in communities that did not receive these e-mail updates

In our studies thirty percent of homeowners respond** to e-mailed information during their warranty period.  Being able to track and learn from this kind of information is crucial for homebuilder success as consumers continue their rapid adoption of mobile information technology.

As consumers become more comfortable with web and e-mail based communication it is likely that the printed paper homeowner handbook become less useful.  A thoughtful web-based warrranty and homeowner management program will be required to successfully support for the millennial, gen x and gen y market segments.

**Note - "Respond" is defined as customers the take action by clicking on a link for more information. 

E-mail/Online and USPS Notices: Best Response Rates

I am frequently asked about the effectiveness of e-mail/on-line media versus printed United States Postal Service (USPS) letters for communicating important information that requires some kind of response.

While I am not claiming to be an expert in print to draw out all the comparisons, one advantage of email is that it gets past the "gate keeper" who opens, sorts and prioritizes mail, in contrast to e-mail which will often get to the actual intended recipient.  In the same home you could also have multiple recipients recieving the same e-mail message directly at their desktop.

Several recent research studies have describe that higher response rates were achieved among certain audiences when using of e-mail/on-line versus paper surveys.  Although customer survey responses are not a perfect analogy for determining the most effective mode for customer interaction; the studies do show a significantly higher response rate for e-mail vs. USPS when recipients are already “on-line” and have been conditioned to use e-mail as the primary means of communication with a particular vendor or service provider.

Certainly more and more home buying customers fall into this “on-line” category….but the most effective way to get a high response rate from this kind of audience is to use a combination of media…e-mail/on-line, phone and perhaps a post card or two.

Here are some helpful blog links on the subject:

E-mail versus snail mail: which ever is better for you...

E-mail vs. Snail Mail: Creative Criticism...

Marketing - Snail Mail versus E-mail, MoneyBlog...

Direct Marketing News, Views and Opinions: E-mail

 

Green Products - Going where warranties have never gone before!

New "Green" products are breaking into new territory that deserves a warranty professionals attention.  Energy Star Logos, New 13 SEER Air Conditioning, and Furnace Manufacturer's must address a new claims challenge that arises from consumer demand for environmentally friendlier products.

Product warranties focus on repairs at the beginning of a product's life, but these warranties often do not explicitly address the energy usage reduction claims over the full life of a product or the recycling claim at the end of a product's life.

According to Eric Arnum of Warranty Week, one complicating factor for new requirements for 13 SEER Air Conditioner units could be the existence of a home warranty policy, which would cover repairs and replacements of defective items, but may not pay for the replacement of perfectly good components that need to be replaced solely for the sake of compatibility.  Yes, we will pay for the defective outdoor unit, but no we will not pay for the replacement of the perfectly good evaporator coil indoors. The only thing wrong with it is it won't work with the new outdoor unit.

The Environmental and Energy Study Institute estimated increases of three to eight percent in equipment costs between 10 SEER and 13 SEER, which because of the projected 30% savings in electricity would pay for itself in about 3.5 years of lower running costs. More importantly, the electricity not generated and the power plants not built would reduce nitrous oxide emissions by up to 85,000 metric tons and would reduce carbon emissions by up to 33 million metric tons, the EESI estimated. But where do buyers send the bill if the unit uses only 20% less electricity per year?

Get more information regarding 13 SEER Air Conditioning Units and details about Energy Star and Finance Manufacturer's from Eric Arnum's recent article in Warranty Week.

Perfecting the Art of Passing on Warranty Costs

According to Eric Arnum of Warranty Week homebuilders seem to have perfected the art of passing their costs on to others.  In the building materials sector in our report is a catch-all for all sorts of items used to furnish offices and homes. It includes cabinets, roofing, faucets, doors, chairs, windows, beds, pillows, tables, locks, pools, paint, carpets, and lots more. And while some of these items attract above-average warranty costs, the sector as a whole is the second lowest of all, beaten by only the auto parts supplier sector.

There's something to be said for being a supplier. On each of these charts, the brand names facing the consumer suffer the highest warranty costs, while those further back in the supply chain seem to keep their costs far lower. The big difference is that the homebuilders seem to have perfected the art of passing their costs on to others.

U.S. Building Manufacturers and Homebuilders
       Warranty Accrual Rates, 2003 to 2007
                       (As a % of Product Sales)

 

Warranty registration cards and homeowner obligations

Are homeowners obligated to return their registration card to protect their warranty rights?  Generally this is not true - and prohibited in a few states, notably California.

For warranty purposes, the only information a manufacturer needs is the homeowner's name, the date you purchased the product, its model and serial numbers, and a way to contact you in the event of a product recall. 

But the registration cards usually ask you to provide much more personal information, including marital status, the size of your household, frequency of travel and favorite activities. Product owners are not required to answer personal questions to be protected by the warranty.  (NY Daily News) More...