Those Pesky Warranties

By Liz Martinez, ABOC, NCLC
The old days—when manufacturers provided a no-questions-asked refund or replacement on virtually any lens—are fast receding in the rear-view mirror. Labs have become the default administrators of warranties, and many labs believe they’ve inherited the short end of the stick.

According to Steve Sutherlin, president of Sutherlin Optical Lab, the optical industry has somehow determined that the labs should bear most of the responsibility for the cost of warranty work. The manufacturers provide labs with an allowance that is intended to cover the cost of the materials but not the labor.

Generally, lens manufacturers give labs a small discount on their monthly invoices—typically in the two- to six-percent range, depending on how much business the individual lab does with the manufacturer—that is supposed to cover the cost of the lenses the lab takes back from ECPs under warranty.

Tom Schroeder, president of Schroeder Optical, explained the thinking behind the invoice credit system. “The labs no longer have to go through the trouble of sending back the lenses and waiting for the manufacturers to issue a credit,” he said. “Most manufacturers just give us the credit automatically on the monthly invoices.”

TIME AND LABOR COSTS

However, the labs are still responsible for the cost of surfacing and sometimes edging the replacement lenses. The discount is woefully inadequate and doesn’t even begin to compensate for the labor involved.

“I always equate lens warranties to the automotive industry. If your transmission went out on your new car while it was under warranty and the manufacturer sent the dealer a new transmission, would they expect the dealer to perform the labor for free?” Sutherlin asked. “That is exactly how our industry works, except we have to pay for a large portion of the cost of the transmission, too, plus all of the labor.”

“There are no warranties like this on any other type of product,” Schroeder concurred. “You don’t get a warranty on the paint job on your car, for example, the way you get a warranty against lens scratches.”

Judy Canty, Luzerne Optical’s territory sales manager for Virginia, stated that most labs offer warranties to ECPs based on whatever the labs’ vendors require. “Volume has a lot to do with this, just like it does on pricing,” said Canty.

“Some lenses must be returned to the manufacturer, especially the newer, expensive, digitally-processed ones. If a vendor requires that the lab return warranted lenses, then we must require it of our accounts. It’s a hassle and it’s expensive. Not only does the lab bear the expense of returning product, but we also bear the expense of processing the new lenses,” Canty added.

But while manufacturer warranties are costly to the lab to administer, they do have a great benefit—to the lens maker, that is. “The manufacturer gives the lab a small credit percentage on their invoices, and then the lab just goes ahead and buys more lenses from the manufacturer in order to honor the warranty for the ECP,” Schroeder pointed out.

The labs don’t really have much of an option in terms of deciding whether or not to honor warranties.

“Labs have no choice but to back up their warranties,” said Tim Steffey, sales and marketing manager at Sunstar Optical. “We structure our pricing to make sure we are profitable on private Rx work. With VSP and Vision Source, we have to follow their policies,” he said.

A DOUBLE-EDGED SWORD

According to Canty, “Warranties are often a double-edged sword. They can offer both ECPs and patients a level of comfort, given the cost, both wholesale and retail, of new eyewear these days.”

Sutherlin agreed. “From the ECP’s perspective, a warranty can certainly enhance their confidence in selling a product when they know that the lab will back it up. Whether that is the best reason to make a sale is questionable, though,” he added. “The features and benefits of the products should be reason enough to promote them.”

While dispensers can feel more secure knowing they can return problem lenses to the lab for credit or remakes and patients are happier shelling out big bucks for new glasses if they come with some sort of protection, some ECPs can also take advantage of warranties, or at the least, use them unwisely.

In the past, some ECPs claimed a warranty return for everything from an Rx change to glasses run over by a Mack truck. They would get credit for a lens that was not actually defective by just running a screwdriver down the front of a lens and requesting a warranty replacement for the resulting scratch.

“Unfortunately, the same warranties that provide comfort to dispensers and patients also offer the temptation to abuse them,” Canty said.

Schroeder agreed. “A lab’s nightmare customer is one who will tell patients to come back in a month so they can look for scratches on their lenses and then replace them,” he said. “That’s the best kind of account that the manufacturers would like labs to have because then we’ll buy more lenses in order to back up our warranty to the dispenser.”

MAKING WARRANTIES WORK FOR YOU

Clearly, warranties can be troublesome for labs to administer and fulfill, but is there an upside? Experienced lab professionals say that there are several ways to make warranties work for the lab.

1) Warranties can be confidence boosters for dispensers who are well informed about new products but who may still be a bit hesitant to sell them. A warranty can provide that extra cushion of comfort that can encourage the increase in sales of premium items.

2) Warranties can also be loyalty builders for labs. If an account feels confident that the lab will fulfill its promises, they will have more reason to stick with that lab than to move their business to the next lab that comes along with some small enticement. As Steffey put it, “If there is a problem and the ECP is a good account, we will give them what they need.”

“From the ECP’s viewpoint, warranties are also seen as a way to retain patients,” explained Canty. By having the lab standing behind them, ECPs can feel free to take care of their patients, which in turn generates patient loyalty and keeps revenue flowing into the dispensary and on down the line to the lab.

3) Train ECPs on the profitability of selling warranties to their patients. According to Steffey, labs can help ECPs by showing them that selling a warranty will add to their profits. “Most patients will not use their warranties. So when a dispenser charges an additional $10 for a scratch warranty, for example, that is $10 of pure profit for the ECP. By not offering a warranty, ECPs are in effect leaving money on the table,” said Steffey. For those ECPs who find selling the warranty as an add-on to be too difficult, they can simply build it into the cost of the glasses and inform the patient that their new eyewear comes with a warranty.

4) Packages sold with warranties are an often overlooked source of additional income for both the ECP and the laboratory. Just as ECPs can painlessly build in the warranty cost and add additional profit to each eyewear sale, labs, too can offer warranted packages to their accounts. Kids’ eyewear especially lends itself to a warranty package because children experience more scratching and breakage than adults.

“Warranties can be a profit center,” Schroeder explained. “Most people aren’t going to come back, but a warranty on kids’ glasses can be very valuable to parents. A good segment of the kids’ market ends up in discount opticals because people will shop price on kids’ glasses more often than on adults’,” he added. A warranty can be a way for an independent ECP to retain their share of this market segment.

As far as a direct benefit to the lab, Schroeder felt that selling a kids’ eyewear package with a warranty works well. “We can sell a frame and lens with a one- or two-year warranty, but we’ll have a kit of 12 and try to get them all into the ECP’s office,” he said. “We build in some profit to the package cost and allow for the warranty, as well. But we’ll only see a low percentage of returns, so it’s very profitable.”

Warranties profitable? Who knew?

CURRENT ISSUE


May/June LabTalk 2017