Well, the spin we put on those timeless words of wisdom is “the best things to sell are free – or pretty close to it”.
What we’re talking about in this essay is how you can sell the relatively low-cost intangibles peace of mind, time, and personalization. These items, as you have probably already inferred, have the highest profit margins of all – as their cost is next to nothing!
Selling nothing more than air is not as hard as you think. In fact, many types of businesses have been at it for years. You can get in the game of selling intangibles by implementing the best practices outlined in this essay.
Before we get started, one thing we should clear up right away is that selling nothing but air (that is, intangibles) is all about connecting benefits with customer problems – even if the customer in question has never encountered the problem at hand.
All of the marketing tactics we are going to talk about today require a little action on your part. Namely, you have to know what can go wrong for your unique customers post-sale. Do you sell a product that could break? Is it a high theft item? Does the manufacturer’s warranty on the items you sell have unfriendly steps like shipping the item abroad, which you could absorb for your customers by offering an extended warranty or insurance plan?
Whatever the case may be, you can leverage selling intangibles like warranties and insurance to grow your revenue and increase profitability dramatically.
In this lesson, we’ll look at selling nothing but “air” as follows:
- Selling extended warranties
- Adding insurance onto the sale
- Selling time and personal attention
Selling intangibles helps you pull two of our 7 Levers of Business (Items per Sale and Profit Margin) and that’s exactly why we are putting these tactics in focus in this essay. Let’s dive right in to see how it’s done!
Selling nothing but air tip #1: Selling Extended Warranties
A 2012 Decision Sciences report titled “Retail Strategies for Extended Warranty Sales and Impact on Manufacturer Base Warranties” tells us just how profitable extended warranties are in all reality. The report states “extended warranties have profit margins of 50 – 60%, nearly 18 times the typical margin on product sales”.
As that report’s author, H. Sebastian Heese, further explains, when American big box retailer Best Buy sells a $400 extended warranty on a new $3000 TV, $160 is paid to the insurer that backs the warranty, while the remaining $260 goes straight to Best Buy’s profit column.
The same report also tells us that 43% of Apple Computer’s net income stems from the sale of its Apple Care extended warranties. Now, think about what effectively offering an extended warranty could do for you in your quest to double your business’ profitability!
White good (appliances) and brown goods (home electronics) retailers have been selling extended warranties (on top of manufacturer warranties) for merchandise sold at store-level for decades.
An extended warranty covers repair or replacement of merchandise sold in-store or online. These warranties extend protection beyond the manufacturer’s warranty, often both in terms of the scope of the protection and the duration of the protection period.
As an example, if you are a retailer and you sell GoPro cameras in an online store, you might offer your customers the option to purchase an extended warranty that will allow the camera to be repaired or replaced at your store for a year after the manufacturer’s warranty runs out; however, the customer can still send the item to you for repair or replacement during the normal one-year GoPro warranty period.
In that case, you simply facilitate the manufacturer’s repair or replacement for your customer. See, for your business, often the only cost associated with selling a warranty will be fulfilling the customer’s immediate problem by replacing a product whilst shipping the defective product the manufacturer and receiving a replacement item to resell.
The number of customers that will actually request an extended warranty repair or replacement will be relatively small in comparison to the number of customers who will buy the warranty and never make a claim.
Swipe + Deploy: Selling the Extended Warranty with the Alternate Choice
The classic sales tactic of “the alternate choice close” is highly effective at selling extended warranties. Since sales conversations work best when they avoid closed-ended questions (or, rather, any question that results in a “yes” or “no” answer), the alternate choice works well as the following example illustrates.
You can swipe the Best Buy model with great ease. The example above shows the three in-store extended warranties (called “protection plans” in Best Buy lingo) available for an iPad Mini. At a price of $379 (USD), you can see that the added protection appeals in all cases over the prospect of having to replace the item, should it not perform as expected.
Best Buy’s example pops-up after the item is added to the shopping cart, as an add-on.
Note that the prices of the respective plans are incremental and offer a small discount for each additional year purchased. You could carry this over in any way you like, but here’s an example:
For an item valued at $250:
- 1 Year of extended warranty for $57
- 2 Years of extended warranty for $97
- 3 Years of extended warranty for $177
This works online just as it does in a face-to-face sales environment, wherein the customer is presented with three choices, and is likely to pick the middle option, rather than decline the offer offhand.
Overcoming “The Dark Side” of Extended Warranties
Keep in mind that there is a “dark side” to extended warranties. Some consumers have a poor perception of extended warranties. A 2012 US News report describes some of the reasons why certain consumers never purchase an extended warranty.
Let’s take a look at some of the best ways to overcome the most common of the objections US News describes.
“The Manufacturer’s Warranty is Often Sufficient”
If you are in the business of retailing this is something you will hear often if you try to sell an in-store extended warranty.
To overcome this common objection, try the following:
State that the in-store extended warranty is hassle-free
State that, while the manufacturer’s warranty is in place, it requires the customer to pay to ship the item to a repair/returns centre.
State that the extended warranty will result in repair or replacement, depending upon which is most cost effective
The important thing to remember is that if you offer a hassle-free extended warranty, you have to honour it when the time comes. The profits you will enjoy as a result of selling extended warranties will negate the occasionally costs associated with delivering on the extended warranties you sell.
“Extended Warranties are Not Always Effective”
This customer objection is easy-as-pie to swat like a fly!
Your own confidence in the extended warranty will carry you a long way with regard to this one. Are you really prepared to back up the extended warranty should the customer come back calling on it? Absolutely! Let it be known in your offer.
Let your customers know that you fully back your extended warranty explicitly, either through your sales copy or your sales conversation (it works either way).
Selling nothing but air tip #2: Adding insurance onto the sale
You’re probably wondering about the difference between warranty coverage and insurance, right?
The main difference between an insurance plan and an extended warranty is that, typically, the former covers loss, damage and theft, in addition to failures and defects covered by the latter. Insurance covers whatever (including things like rain damage, often called “acts of God”); a warranty is meant to make sure a piece of merchandise functions as-advertised.
What’s more, warranty repairs typically have no deductible for the customer to pay; insurance generally calls for an excess to be paid before the item can be replaced (in other parts of the world, this is called “meeting a deductible”). Also, whereas warranties are typically sold up-front, insurance is usually a recurring charge.
The wireless industry has been adding-on insurance for sales of handsets for years. In the United States alone, wireless carriers sold more than $7.8 billion in insurance plans, according to a Warranty Week report from 2013.
Vodafone has implemented a fairly typical insurance program for its industry, which it offers to customers for $11 per month, with a $50 – 300 excess, covering up to $1700 to repair or replace a device, and up to an additional $500 to cover unauthorized calls, as well as up to an additional $100 to replace accessories.
Insurance works best as an add-on after your customer has taken the initial buying action (clicking on a call to action “Buy” button, for example), but before the final checkout prompt.
But selling insurance can work for other business models besides retail. PT Partners, an Australian accounting firm, offers tax audit insurance in a great example of how insurance can work for service-based businesses of any size. Note that the insurance the accounting firm offers is actually from a third party, Accountancy Insurance (just as mobile device insurance is often provided by Asurion).
In this way, by selling insurance these companies are actually selling a third-party product that handles the insurance claim process. To find an insurance partner that fits your business, you will have to research insurance providers that cater to your industry.
Selling nothing but air tip #3: Selling time and personal attention
Did you ever notice when you were at university that professors have something called “office hours”? Higher education instructors are expected make themselves available a certain number of hours each week, outside of their teaching schedule.
Have you ever thought about offering “office hours” as a service or as an add-on bonus of signing up for your main services?
A book called The Future of Success: Working and Living in the New Economy, in chapter nine, points out that “personal attention is an ever-larger portion of the gross national product, an ever-bigger percentage of every dollar spent and earned”. Turning office hours into a sellable item allows you to capitalize on the increasing focus on personalization in the minds of your customers.
To do this, offer your customers a Skype number and a limited number of hours (say, 9 -11 in your time zone) during which they can contact you for a limited length of time (say, 15 minutes). If you are unable to take a call, state that you are already on another call and that the customer will have to call you back.
Note that this differs from offering a free initial consultation, as many consultants and attorneys do – and which many feel are not so profitable. For our purposes, you want to be selling your office hours as time for personal interaction with customers as a benefit of choosing your service.
Canadian Paul Kurucz offers “office hours” via Skype and email as part of his top-tier service/product packages, which allows email a one hour consultation via Skype, two years of email support, and an eBook guide for expatriates moving back to Canada as part of his $250 offer.
One important caveat here is that, legally, if you offer something for sale and someone purchases it, you have to be prepared to deliver the service. So make sure your schedule actually permits you enough time to fulfil your “office time” commitments.
PS – Don’t be like Radio Shack! The American electronics retailer has a notorious history of selling worthless equipment protection plans, and it’s made their warranty program a regular source of fuel for sites like The Ripoff Report and Consumerist. One suspects that the sheer volume of negative social proof surrounding Radio Shack’s bogus warranty program might be contributing factor to the company’s recent decision to close 1,100 of its brick-and-mortar locations.
If you sell intangibles, be prepared to deliver on them, should the need arise.