Guarantees, Warranties and Exchanges

When a consumer buys a product, he has an expectation that it will perform its intended function when he gets it home. This is true whether the product has a written guarantee or not. What’s more, if it doesn’t work, the product will likely be returned for an exchange or refund.
Small businesses deal with these issues all the time and you may already have a way of handling them that works well for you. If that’s the case, there’s probably no need to change your current policies. This article addresses some of the common themes relating to product performance and customer expectations.

A guarantee is a legally enforceable promise that something will perform for a specified period of time, and will provide a certain benefit based on its content and quality. It originates with the manufacturer and passes through to the consumer through distributors and retailers. Guarantees come in a variety of forms, so it’s important that any guarantee you offer is clearly spelled out. Here are a few examples:
  • Full money back, no questions asked
  1. This approach is effective when you are trying to get people to try a new product or buy from a new company. It eliminates the purchasers' risk and makes them more inclined to buy from you.
  2. While this opens the door to unlimited numbers of returns, if your product is sound, it’s worth the risk to the business owner to gain new customers and sales.
  • Money back guarantee with conditions

  • Satisfaction guaranteed
  1. This phrase is frequently used as an advertising slogan rather than a legally enforceable contract. The problem with offering such a guarantee in writing is that the business is at the mercy of the consumer when it comes to interpreting what constitutes complete satisfaction. It also leaves the door open as to what the business must do to compensate the consumer if the product is deemed unsatisfactory.
  • Other guarantees
  1. You can customize guarantees to fit the needs of your particular business. You can impose time limits or other limits, or make them unlimited with no restrictions. Whatever guarantee you offer, be prepared to back it up.

Guarantees are free of charge to the consumer and are usually in writing. They also usually include the right of the consumer to return the item for a complete refund or exchange for a replacement item at no additional charge.
Express Warranty
A warranty resembles an insurance policy that covers the repair or replacement of an item. There may be a charge for a warranty, or to extend the warranty beyond the coverage that you receive when you purchase an item. Warranties can be oral or written, or arise by operation of law based on the seller’s description of the product.
The most common express warranties are those that are contained in a written document provided when you buy a product such as an automobile. While the warranty originates with the manufacturer, service or repair may be delegated to a local dealer or retailer which receives reimbursement from the manufacturer.
The warranty specifies in detail the extent to which the performance and quality of the product is backed up by the manufacturer. It also states the conditions under which the product is subject to the provisions for repair, return, or replacement. Common language includes assurances that the product is free from any defects in materials and workmanship.
Implied Warranty
If you are a merchant selling products, you need to be aware there is an implied warranty in any sales contract that the product sold is merchantable and fit for its intended purpose. Implied warranties are in addition to any express warranties, and protect consumers who might otherwise purchase products that do not live up to the merchant’s representations.
Implied warranties are important since most of the things you buy do not come with a written warranty. For example, when you buy groceries at the local market, there is an expectation that the food is fresh and edible. If you discover that something is spoiled or out of date, you can return it for a full refund.
The implied “warranty of merchantability” applies to merchants engaged in the selling of products, and is an unwritten assurance that the products sold are of the same quality and value of similar goods and meet the buyer’s reasonable expectations. It presumes that the buyer will use the products for their normal purpose. The Uniform Commercial Code applies in most states and provides more detail about the application of this warranty.
The implied “warranty of fitness for a particular purpose” applies when the buyer relies on the seller’s knowledge and expertise in selecting a product for purchase. In this case, the seller does not have to be a merchant but must be aware of the buyer’s intended use. The warranty will not normally apply if the buyer independently selects a particular brand, if he specifies the design for what he wants, or if he has more expertise than the seller.
These warranties can be specifically disclaimed by name or by using terms like “as is” in a sales contract. Depending on state law, some products may not be eligible for the disclaimer.
Refunds and Exchanges
Most businesses have to deal with refunds and exchanges, and how you do it depends on the nature of your business and your personal choices. Here are a few things to consider:

  • Clearly explain your refund and exchange policies in advance so there are no surprises later on
  • Stand behind all guarantees and warranties
  • Consider the value of the item versus the potential lost goodwill
  • Consider a partial refund if a full refund is not appropriate under the circumstances
  • Happy customers will come back again and are your best form of free advertising

Michael Sanibel is a freelance writer specializing in business, marketing, personal finance, law, science, aviation, sports, entertainment, travel, and political analysis. He graduated from the United States Air Force Academy and is also licensed to practice law in California and New Hampshire. Michael wrote this feature article exclusively for Debbie (, an organization dedicated to helping small businesses succeed.
  1. This approach is more effective if you already have an established reputation and existing line of products. It might include a trial use for a set time period during which a return can be made, but not beyond an established date. Or you might require a refundable deposit that will be returned if certain conditions are met. There are many variations possible using these basic themes.