Warranty Fraud Management

Chapter 2Products and Product Warranty

When investing to buy a product, the customer needs some assurance of the product performing satisfactorily and meeting customer expectations over the designed life of the product. Product warranty (we will call this base warranty to differentiate it from other types of warranties) is one way for the manufacturer to provide this assurance. It is a part of the product value proposition (different, but often following the legislation and consumer protection directives—which could vary from country to country). The manufacturer rectifies any problems (technical and aesthetic—for example, brakes functioning properly and the paint not flaking) when the item is still under warranty. Once the base warranty expires, the customer needs to either carry out any rectifications at own cost or buy an extended warranty or maintenance service contract. The price of extended warranty and maintenance service contract depends on the terms of the coverage. We use the term warranty to include the base warranty (BW), extended warranty (EW), and maintenance service contract (MSC). Manufacturers and the associated value chain and sales channel often think about base warranty as a cost item, a mandatory cost of doing business, and potentially as a way to increase sales. Extended warranties and maintenance service contracts are considered as a way to earn additional revenue and improve profitability.

This chapter briefly introduces products and product warranties ...