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Learn what truly sets the UC Riverside MBA apart and how it helps in your professional growth
18 May 2014, 08:03
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Kindly evaluate my AWA. Your feedback/comments will be of great help to me. 1 month to go for my GMAT 
ESSAY QUESTION:
The following appeared in a memo to executives at a company that manufactures industrial equipment:
"We are spending too much on free customer service after a sale has been made; we need to limit our warranty to two years in order to improve our profit margins. The current lifetime warranty can lead to costs decades into a product's life cycle. Also, we pay our customer service employees a premium because they must possess expert skills across the entirety of our very diverse product line, including products we no longer sell."
RESPONSE:
The argument that the company needs to limit its warranty to two years to improve the profit margins is based on the premise that the company is spending too much on free customer service and there is premium that is paid to the customer service employees for their expert skills on the products.
This argument is based on certain assumptions that may not be necessarily applicable. First it assumes the cost of warranty of the products outweighs the margin the company receives from the sale. Second, it is based on the assumption that all products, irrespective of whether old or new contribute significantly to the warranty claims.Cost of the premium to the employees is higher than the warranty cost per product handled by the employee.
The first issue to be discussed is whether the cost of warranty of products is higher than the margin the company earns as markup from the sales. While this may be true according to the author, not all companies look at it from the perspective of financial benefit. The company may also consider the social ramifications that may be caused if the products that fail are not replaced under the warranty.It is possible that companies strongly believe that to retain the customer and thereby to improve the sales, warranty for the products the company sells will provide a significant boost in the faith of its customers. Customer Referrals may be considered equally important by companies to boost its sales.
The argument relies on the idea that the the high premium combined with the cost of warranty hampers its margin. One could argue that for the skills the employees posses they will demand a pay, which must be met in order to retain the employees. If the company compromises on the pay to the employees, there lies a possibility that the warranty claims are inappropriately passed that will not only hamper the profit margin but also the customer satisfaction. For instance, if the product flaw is wrongly diagnosed by the customer service employee and a wrong part is replaced under warranty, it may result in repeat complaints of the customers that may further add to the warranty cost of the company.
Finally, it may be possible to limit the warranty to 2 years for some products like tyres, electronic appliances, it is highly likely that that same can be applied uniformly across all platforms. While certain sectors like the automobile, the customers have high expectations and thereby expect the company to cover a majority of its parts under warranty.One could also argue on improving the product quality to reduce the warranty cost instead of limiting warranty.
I would conclude that the argument to limit warranty to improve profit margins is not persuasive as it fails to consider the social ramifications, customer satisfaction, customer confidence and faith in the products that as a result of warranty that in turn may boost sales. If the above points are considered instead of merely limiting the warranty period, the argument may be sound and thorough.
ESSAY QUESTION:
The following appeared in a memo to executives at a company that manufactures industrial equipment:
"We are spending too much on free customer service after a sale has been made; we need to limit our warranty to two years in order to improve our profit margins. The current lifetime warranty can lead to costs decades into a product's life cycle. Also, we pay our customer service employees a premium because they must possess expert skills across the entirety of our very diverse product line, including products we no longer sell."
RESPONSE:
The argument that the company needs to limit its warranty to two years to improve the profit margins is based on the premise that the company is spending too much on free customer service and there is premium that is paid to the customer service employees for their expert skills on the products.
This argument is based on certain assumptions that may not be necessarily applicable. First it assumes the cost of warranty of the products outweighs the margin the company receives from the sale. Second, it is based on the assumption that all products, irrespective of whether old or new contribute significantly to the warranty claims.Cost of the premium to the employees is higher than the warranty cost per product handled by the employee.
The first issue to be discussed is whether the cost of warranty of products is higher than the margin the company earns as markup from the sales. While this may be true according to the author, not all companies look at it from the perspective of financial benefit. The company may also consider the social ramifications that may be caused if the products that fail are not replaced under the warranty.It is possible that companies strongly believe that to retain the customer and thereby to improve the sales, warranty for the products the company sells will provide a significant boost in the faith of its customers. Customer Referrals may be considered equally important by companies to boost its sales.
The argument relies on the idea that the the high premium combined with the cost of warranty hampers its margin. One could argue that for the skills the employees posses they will demand a pay, which must be met in order to retain the employees. If the company compromises on the pay to the employees, there lies a possibility that the warranty claims are inappropriately passed that will not only hamper the profit margin but also the customer satisfaction. For instance, if the product flaw is wrongly diagnosed by the customer service employee and a wrong part is replaced under warranty, it may result in repeat complaints of the customers that may further add to the warranty cost of the company.
Finally, it may be possible to limit the warranty to 2 years for some products like tyres, electronic appliances, it is highly likely that that same can be applied uniformly across all platforms. While certain sectors like the automobile, the customers have high expectations and thereby expect the company to cover a majority of its parts under warranty.One could also argue on improving the product quality to reduce the warranty cost instead of limiting warranty.
I would conclude that the argument to limit warranty to improve profit margins is not persuasive as it fails to consider the social ramifications, customer satisfaction, customer confidence and faith in the products that as a result of warranty that in turn may boost sales. If the above points are considered instead of merely limiting the warranty period, the argument may be sound and thorough.
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