Sellers Woo Shoppers With Guarantees to Address Layoff Worries
First, retailers enticed struggling consumers with deep discounts. Then they dangled buy-one-get-one free deals.
The latest recession tactic? Guaranteed financial help in the event of a job loss.
With countless workers hoarding cash and fearful of joining the swelling ranks of the unemployed, American companies are trying to stimulate demand with a new twist on an age-old retailing strategy: money-back guarantees.
In the last couple of months all kinds of companies — car manufacturers, home builders, airlines, apparel chains, cellphone carriers — have started promising their customers financial assistance, refunds, even free services, if they lose their jobs.
JetBlue will refund plane tickets. Virgin Mobile USA will waive up to three months of cellphone service charges. Walgreens will allow members of its in-store clinics to stay enrolled free if they lack health insurance.
The Minnesota Timberwolves basketball team will refund season tickets for games not yet played. And the builder BigelowHomes will pay the mortgage while the homeowner is out job hunting.
Last month, Bigelow mailed 15,000 fliers to Chicago-area residents promoting its “recession-proof” homes in Aurora, Ill.
“I saw the flier and thought ‘Hmm, that is interesting,’ ” said Desiree Miller, who lives about 20 minutes outside of Aurora and has been renting for about a decade.
She had no intention of buying a house, but the words “recession-proof” tempted her enough that she took a tour of the development. A day after stepping inside a home with three bedrooms, two bathrooms and a two-car garage, Ms. Miller plunked down a deposit.
She figured home prices were unlikely to go much lower, after falling more than 20 percent statewide in the year that ended in February. Also, beyond the job-loss guarantee, Bigelow promised that if the value of her home did decrease, it would pay her the difference.
“It really is a good time to buy a house, and with everything else they put behind it, it just made it a good decision,” Ms. Miller said, referring to depressed prices and low interest rates. “Those guarantees just helped solidify that decision.”
The recession-proof home pitch has not unearthed throngs of buyers, but Michael Venetis, Bigelow’s vice president for sales and marketing, said, “we sold six homes that we can attribute directly to that promotion.”
Companies offering these extreme guarantees — which typically require documentation to verify a job loss — said they were a direct response to research showing that a growing number of consumers were worried they might lose their jobs.
Notably, the programs are not as expensive to companies as they might seem, retailing scholars said, since the offers are usually for a limited time and few people wind up taking advantage of the offers.
Bryan Baldwin, a spokesman for JetBlue, said the airline created its guarantee after noticing a change in ticket-buying habits.
“People were booking closer to their travel date, and we thought that could be an indication of people not feeling as comfortable making their travel arrangements as many months in advance,” Mr. Baldwin said.
JetBlue’s best deals are the ones booked furthest in advance, though. So in February the company announced that if customers lost their jobs, they could get a refund on their unused tickets. Last month the airline extended the guarantee to protect people who also bought JetBlue vacation packages.
At the men’s retailer JoS. A. Bank, the $199 suit sale is nothing new. But for the first time the company said it would refund the price of a suit bought from March 16 to April 9 if the buyer had lost his job. Even better: the buyer can keep the suit.
“If we take a suit back we’re going to give that suit to charity anyway — it’s been worn,” said Jerry DeBoer, the company’s senior vice president for marketing. “You can go use it for the new job.”
Companies like JetBlue and JoS. A. Bank acknowledge that their guarantee programs were inspired in part by Hyundai Motor America. The car company began offering a job-loss guarantee called “Assurance” in January after realizing that tactics that typically lured shoppers — like low-interest financing and cheap leases — were not working.
"You never know what’s going to happen day to day anymore."
Chris Hosford, a spokesman for Hyundai, said company executives sympathized with nervous consumers. “We all got it because we all felt it too,” he said. “We have friends who have lost their jobs.”
Indeed, the recession guarantees can help retailers give the impression that they are not “tone deaf,” as Eric T. Anderson, a professor of marketing at the Kellogg School of Management at Northwestern University, put it. “They’re trying to say ‘We get what’s going on your side,’ ” he said.
Hyundai’s guarantee allows consumers who have lost their jobs to return a new car within a year of the purchase date. Another program, announced in February and offered until April 30, added 90 days of payment relief to the existing protection plan. Other car companies, like Ford and General Motors, followed suit with their own job-loss guarantees.
The Hyundai guarantee was among the reasons Doug Maran of Pembroke Pines, Fla., bought a limited-edition Sonata last week.
“You never know what’s going to happen day to day anymore, why not?” he said, testing his car’s Bluetooth system as he climbed in for the first time on Friday.
Executives at Hyundai and other companies say that providing job-loss insurance has helped lift sales.
“Our research shows that about 10 percent of our sales from the first quarter of this year have come directly from that program,” Mr. Hosford said.
Ted Johnson, chief marketing officer for the Minnesota Timberwolves, said that in the first six weeks of the team’s promotion, “we sold three times the number of tickets as the same time last year and doubled our revenue in new sales.”
Still, despite early signs of success, some scholars contend that the guarantees will be short-lived and will not generate significant sales.
“I don’t think that would be the best way of doing it,” said Claes G. Fornell, a professor at the Stephen M. Ross School of Business at the University of Michigan, and director of the National Quality Research Center there.
“Warranties and guarantees, they reduce the risk of buying, that is true,” Professor Fornell said. But, he said, consumers today care more about saving money than being insured against job loss. The national savings rate, in fact, has skyrocketed.
Guarantees are nothing new. They have been used for decades to reassure customers worried about the staying power of a new product or service. Guarantees linked to a consumer’s work jitters, though, are unique to this deep recession.
“They’re trying to move into a new area of risk reduction which is a little bit unusual,” said Professor Anderson of the Kellogg School. “These are just indicators of what’s going on in the mind of the consumer.”
The new guarantees are intended not to give away suits or cellphone service, but rather to offer peace of mind. After all, the national unemployment rate rose to 8.5 percent last month, from 8.1 percent in February. And economists say the rate could soon climb into the double digits, as it already has in states like California and Michigan.
“I think the fear of job loss is relatively high right now,” said Robert C. Blattberg, a professor of marketing and retailing who has held positions at Carnegie Mellon and Northwestern University, “and even though it may only be two in one hundred, you’re still afraid you are one of the two.”