Products are generally marketed with, and supported by, various affirmative assertions from the seller with respect to certain characteristics of quality, safety, performance, and durability. These assertions, usually referred to as “warranties,” may be provided in written or oral form, although they are most commonly found in advertisements, brochures, and specification sheets. In fact, a warranty may also be derived from representations of the product in models and pictures. Regardless of their form, warranties or guarantees are important promises by manufacturers or sellers to stand behind the products that they offer to consumers.
Whenever a transaction involving the sales of goods occurs, the parties must be mindful of various types of warranties codified in the general law of sales appearing in the Uniform Commercial Code (“UCC”), including the implied warranty of merchantability; the implied warranty of fitness for particular purpose; and any express warranties provided by the seller in connection with the sale of the specific goods or equipment, typically through affirmative written and oral statements regarding the quality of the items. While implied warranties, subject to applicable regulations, will often be modified or excluded, express warranties generally will be included to some extent in each transaction, primarily as a means of inducing customers to purchase the goods or equipment. As such, care must be taken in drafting such warranties and in designing appropriate remedies and rights for any breach thereof. For complete discussion of warranties under the UCC, see Sale of Goods (§§ 120:1 et seq.).
When writing a commercial or consumer product warranty the manufacturer or seller is faced with a complex set of decisions in determining what type, if any, written warranty to offer. Principally, these decisions will involve determining what combination of implied and express warranties to offer; determining whether to offer a full or limited warranty or multiple warranties on various parts of the product; and determining which disclaimers or limitations to include in the warranty. These issues arise in any sale of goods transaction; however, the focus of this chapter is on consumer product warranties.
Warranty provisions for a consumer sales transaction should be carefully drafted and the provisions should take into account not only the applicable legal requirements but also the business elements associated with providing warranty services to consumer customers. The essential elements of any warranty include each of the following:
- Identification of the parties to the warranty agreement. This should include the name and address of the party offering the warranty and a description of the parties who may be entitled to the benefits of the warranty. The party providing the warranty should address the availability of the warranty to persons other than the original consumer purchaser or lessee and any conditions that need to be satisfied in order for the warranty rights to be transferred to any third parties.
- Clear identification and description of the goods and related parts that will be covered by the warranty and, if appropriate, clear highlighting of any characteristics or components that are excluded from warranty coverage.
- A clear and complete description of the warranties provided with respect to the covered goods and parts (e.g., the goods shall perform in accordance with the specifications etc.). In addition, the warranty statement should also include a clear and complete description of any actions or conditions that may invalidate the warranty, such as the failure of the consumer to use the goods in a certain manner or defects caused by any unauthorized service or repair of the goods.
- A description of the remedies offered in the event that a covered good or part is found to be defective, malfunctions or otherwise fails to perform in accordance with the written warranty. In most cases, the warrantor will agree to replace or repair the covered items within a specified period of time; however, in limited circumstances, the warrantor may be willing to provide a refund of the purchase price.
- Disclosure of the procedures that should be followed by the consumer to exercise its warranty rights, including identification of parties authorized to perform warranty services on behalf of the warrantor. The procedures should address the manner in which the covered goods are returned for warranty service, the amount of time that the warrantor will have to complete the warranty service and the procedures for returning the new or repaired items to the consumer purchaser. If the consumer purchase is required to bear any expenses, these should be clearly stated in the contract.
- Disclose of the duration of the warranty and a clear description of the procedure for determining when the warranty period begins and ends. If any registration of the covered items is required, a statement to this effect should be conspicuously included along with clear procedures for completing the registration.
- A description of dispute resolution procedures that can be used to resolve any questions regarding the performance of the covered goods and the warrantor’s fulfillment of its obligations with respect to providing warranty coverage.
Warranty provisions in consumer sales and lease agreements typically include additional language to address various legal requirements and risk-allocation issues. For example, the warranty should include any language mandated by applicable state law, such as a statement to the effect that certain states do not permit limitations on the duration of any implied warranties or the exclusion or limitation of certain types of remedies. In turn, state laws notwithstanding, the warrantor will almost always seek to exclude or limit incidental and consequential damages and cap the warrantor’s overall liability with respect to warranty claims at the amount actually paid by the consumer purchaser for the covered items.
In response to the widespread misuse by merchants of express warranties and disclaimers, Congress enacted the Magnuson-Moss Warranty Federal Trade Commission Improvement Act of 1975. [15 U.S.C.A. §§ 2301 et seq.; referred to as “the Magnuson-Moss Warranty Act” or “the Federal Act”] The Federal Act is based on the premise that suppliers of consumer goods vigorously use written express warranties as advertising and merchandising devices. If these warranties are to be used, they must meet federal standards in terms of disclosure and remedies provided to an aggrieved consumer.
The Magnuson-Moss Warranty Act regulates service contracts and written warranties on “consumer products” that are distributed in interstate commerce and mandates certain guidelines in connection with written warranties, regulates their disclosure to consumers, restricts conditions on warranties, imposes different requirements for “full” or “limited” warranties, and restricts the ability to disclaim or modify implied warranties. The Federal Act does not require the tendering of a warranty on any product. However, if a written warranty is actually given to the consumer, the warranty and the services connected with it must meet certain specifications as implemented by the rules of the Federal Trade Commission (“FTC”). [16 C.F.R. Pt. 700 to 703]
The rules governing the contents of warranties [15 U.S.C.A. § 2303] apply only to warranties pertaining to consumer products costing the consumer more than $5; however, FTC rules regarding disclosure of written warranty terms [16 C.F.R. §§ 701.1 et seq.] and presale availability of warranty terms [16 C.F.R. §§ 702.1 et seq.] apply only to warranties pertaining to products costing the consumer more than $15. [16 C.F.R. §§ 701.2, 702.3] Certain of the provisions dealing with designation of written warranties [15 U.S.C.A. § 2303] apply only to warranties pertaining to products costing the consumer more than $10. [15 U.S.C.A. § 2303(d)]
Consumers are given a federal cause of action for damages resulting from violation of the Federal Act or of a warranty or service contract regulated by the Federal Act, on which they may sue in an appropriate state or federal court. [15 U.S.C.A. § 2310(d)] Given the legal requirements associated with warranties and the importance from a marketing perspective of issuing and servicing warranties in a lawful manner it is recommended that managers and other personnel responsible for warranties and service contracts offered by their companies familiarize themselves with the information and guidelines in the FTC publication called “A Businessperson’s Guide to Federal Warranty Law”.
When a company offers a product for sale, it should have a standard operating policy which describes the procedures for standing behind its products following their sale. The policy should be reviewed periodically for consistency with all product warranties and applicable law. When formulating a warranty policy, significant attention should be given to the business needs of the client, not just the requirements of the law. A warranty policy serves as a sales tool as well as a means to consciously allocate risk between a seller and a buyer for defective products. A poorly drafted warranty can reduce the sales potential for the company client as well as unnecessarily increase the risk of loss. With appropriate care in the warranty review, the attorney for the company can provide a very valuable service. For further discussion on warranty law issues and practice tools, see Consumer Warranties (§§ 140:1 et seq.) in Business Transactions Solution on WESTLAW, which includes an executive summary for clients regarding federal warranty law (§ 140:61).
According to a settlement with regulators announced on September 8, 2016, Wells Fargo Bank fired about 5,300 employees over several years leading up to the settlement for opening more than two million checking, savings, credit or debit card accounts without customers’ knowledge or consent. The bank agreed to pay $185 million in fines (the bank’s quarterly earnings were averaging around five billion dollars at the time of the settlement), refund fees paid by customers on accounts they had not authorized (average refunds ran around $25 per customer according to the bank), and hire an independent consultant to review its sales practices. E-mails from John Stumpf, the bank’s CEO, arrived in customers’ inboxes promising that the bank was “making it right” and the bank took out ads in nearly a dozen newspapers saying that it took “full responsibility” for the actions of its employees; however, the settlement did not include any official admission of misconduct.
Wells Fargo Bank is a large and complex global financial institution and the financial impact of the penalties for this event on the bank will be de minimis. Time will tell whether the bank or its chief executive officer will suffer any substantial reputational damage. There are, however, some important lessons for growth-oriented sustainable entrepreneurs as to what they should be thinking about as they lead their companies with launching their first product or service and seeking the favor of potential investors:
- Critics of the bank have argued that either the people at the top knew about the fraud and did nothing or they should have known about it but didn’t because the bank has become too large to manage. At the startup stage, no detail of the sales process is too small for the CEO not to know, even if there is a separate senior executive responsible for sales. The CEO should be participating in sales meetings with prospective customers, proactively coaching the sales team on how to make presentations and closely monitoring the progress of events with customers in the sales pipeline.
- The situation with the bank reinforces the truism that customers should not have to pay for products and services they don’t want or value. In addition, customers were unhappy about having to spend extra time and effort to get the transactions undone. While startups need to close sales deals to establish credibility in the market and with prospective investors, in the long run what they need more is a base of satisfied customers who have had good experiences with the company on both of use of the products and services and resolving problems. Any issues raised by a customer need to be brought to the attention of the CEO and resolve quickly and fairly, with a bias toward “the customer is always right”. Reporting upward must be encouraged from the very beginning.
- News reports on the bank situation mentioned that aggressive sales quotas had been set for bank employees and that the bank had a history of employing aggressive sales tactics, including cross-selling. Again, sales are important for every startup and there is a natural desire to build up revenues quickly. However, sales goals need to be set at reasonable levels and incentives for members of the sales team need to be based on balanced performance metrics that include customer satisfaction and retention.
- Pundits from the capital markets suggested that the bank might need to do some work to convince investors that the fraudulent sales transactions and the aggressive sales targets were not an indication that the bank had run out of legitimate ways to grow its business. While the leadership of a large bank is probably in a good position to assuage investor concerns—the bank’s CEO had been widely praised before the event for his performance—the startup CEO has one chance to make a good impression and needs to realize that savvy investors will always look behind sales numbers to evaluate the sales process and assess customer satisfaction. If investors lose confidence in the numbers they are receiving from the company, they’ll soon run out of patience with the leadership of the company.
- Experienced early stage investors will interview customers to get a sense of how the company approaches the sales process and interacts with customers. Needless to say, while Wells Fargo Bank can and will survive this particular event, a similar story for a startup will be a “curtain closer” regardless of the glitter and dazzle of the company’s product or service. CEO Stumpf was famously quoted a year before the event as saying “I don’t want anyone ever offering a product to someone when they don’t know what the benefit is, or the customer doesn’t understand it, or doesn’t want it, or doesn’t need it.” An amazing comment in hindsight, particularly if he was aware of what his employees were doing, but actually a sound standard for the startup CEO to impose on his or her sales team and a good metric to use when assessing the quality of customer engagement.
As part of the post-mortem on the Wells Fargo situation, commentators took to lecturing customers on what they should have been doing in order to uncover the problems before the fees began to mount. This is all good advice; however, sustainable entrepreneurs do not put their customers in a situation where they feel compelled to monitor the actions of the company. Customers need to be able to trust the companies from which they purchase their goods and services and growth-oriented entrepreneurs need to begin building that trust from the first day that they open the doors.
Sources: To learn more, see A. Sorkin, “The Brazen Sham No One Noticed”, The New York Times (September 13, 2016), B1; K. Pender, “Why isn’t Wells’ CEO on the hook?”, San Francisco Chronicle (September 10, 2016); and M. Corkery, “Wells Fargo Offers Regrets, but Doesn’t Admit Misconduct”, The New York Times (September 9, 2016).
Dr. Alan S. Gutterman is the Founding Director of the GSE Project (“Growth-Oriented Sustainable Entrepreneurship”) (gseproject.org) and the Business Counselor Institute (businesscounselorinstitute.org). Further information about Alan is available at https://www.linkedin.com/in/alangutterman and more materials relating to the subject matter of the post can be found here.
When putting together a strategy for developing and commercializing a new product or service it is no longer possible to do so without taking into account the Internet, which as of 2014 had more than 280 million users in the United States and more than 3.2 billion users worldwide (approximately 40% of the world’s population had an Internet connection). More and more users and businesses have embraced the opportunities of “electronic commerce” as an important sales and marketing channel for their new and existing products and businesses and consumers all over the world regularly transact business over the Web. Surveys indicate that the number of digital shoppers in the United States as of 2014 exceeded 191 million and that business-to-consumer e-commerce volume in the United States in that same year was approximately $703 billion and retail e-commerce sales were approximately $236 billion. When access to the Internet via mobile devices, such as smartphones, is factored in, it becomes clear that businesses must integrate online marketing and sales into their overall business models.
The International Center for Growth-Oriented Entrepreneurship has just released a chapter on “Online Marketing and Sales Activities” from its Library of Resources for Growth-Oriented Entrepreneurs on Product Development and Commercialization which is available for free downloading and sharing by clicking here.
Some important things you need to know about planning for, and launching, online marketing and sales activities include the following:
1. The range of business uses of a website has expanded rapidly and an online presence has become an essential way for companies to disseminate basic information about their business and products. Businesses may use, or become involved with, the Internet in a variety of ways. For example, businesses use the Web to provide instant information about their products and services; expand customer service; test-market new goods and services; open up distant markets; augment traditional advertising with online advertising campaigns; provide customers a means of monitoring orders; target specialized markets; provide 24-hour accessibility; and raise “seed” financing directly from potential customers to underwrite the costs of developing new products. Additional advantages to having an online presence include the ability to provide customers with the opportunity to interact in “real time” with an online advertiser and leave comments or to request information from the advertiser; the ability to collect information about actual and prospective customers; and the ability to contract online with retail customers and/or other businesses interested in trading-partner relationships.
2. Launching an online business requires attention to the same level of detail as is required with any type of business. The site owners should prepare a detailed business plan that describes the proposed business, including the anticipated business model, target market, financing requirements and promotion strategies. While the initial plan should focus on launching the website and establishing the business, consideration should also be given to possible expansion of the business into new geographic and/or demographic markets. As part of the planning process, arrangements should be made to obtain the necessary financial support for the launch and early stage operation of the e-business, including capital from investors and/or banks or other commercial lenders. A website development and hosting strategy should be selected and other important launch-related activities include selection and registration of desired domain names; acquisition of rights to use desired content on the website; development and implementation of strategies for perfecting and protecting all intellectual property rights associated with the e-business and the website, including copyrights, patents and database protections; and development or other acquisition of tools to facilitate the sale and purchase of goods through the website.
3. While companies may have a substantial amount of in-house expertise regarding website development and maintenance, it is still quite common to rely on outside contractors for assistance in designing and operating a new website and these services will provided under the umbrella of a website development agreement. Website owners also look to outside hosting companies for connecting their servers and other equipment to the Internet. Content for the website will be supplied by employees and independent contractors engaged on a “work-for-hire” basis and the website owner should have appropriate employment and content development agreements with those parties. Companies may also gain access to content for the sites through content licensing and linking agreements. Promotion of the site and the products and services highlighted thereon may be provided by outside parties through marketing and advertising agreements and sales of the company’s products through the website may be conducted through online shopping agreements with vendors specializing in fulfillment of online orders.
4. The value of the Internet to any particular business depends on whether the business can design and operate an effective and functional website. Before serious design work begins, the site owner needs to carefully consider the type of information that will be included on the site and the way it should be placed and organized among the various pages that make up the site. While every site and business is different, there are certain elements that consistently appear on top-flight websites. Among the things that need to be considered are a home page; a legal page including various notices, disclaimers and site usage guidelines described elsewhere in this chapter; navigational tools; graphics; and multimedia content. In addition, the website should always contain information about the company such as a vision or purpose statement; products and services information, including most commonly asked questions, technical specifications, parts lists and troubleshooting, and ordering information; business resources and information including industry and legislative trends and articles and reports; commendations and testimonials; job opportunities and recruitment; and organizational, financial, and investment information.
5. In many ways, establishing a website is similar to creating and publishing a new book or magazine and the success of the site often depends on understanding the importance of content and presentation and being cognizant of various content acquisition strategies and associated legal issues. Companies often rely on employees and independent contractors to create original content for their websites; however, more often than not it will be necessary of desirable to acquire the rights to use, display and publish the creative works of third parties. Accordingly, website owners and their counsel will need to seek and secure content licenses or assignments of third party intellectual property rights covering a wide array of creative works and information including text, data, database content, software, graphics, sound and music and video and audiovisual works. Linking agreements may also be used to ease the process of making relevant content from other sites available for visitors. In order to keep track of the entire process, an inventory should be made of the form, content, and source of all information that is to be available on the website in order to properly review the legal ramifications of using the materials and facilitate the creation of the records necessary to demonstrate the website owner’s proprietary rights in the materials.
6. Site owners often have a fixed idea of what they are looking for with respect to development of their site and, in many cases, the appropriate arrangement will be dictated by the sophistication of the functions and activities associated with the proposed site. While it is not necessarily the best strategy for the long term, a smaller site owner can begin with a “do-it-yourself” approach to developing the site if sufficient in-house time and expertise is available. If this is not practical, or the scope of the project is relatively large, outside contractors can be brought in for assistance in designing and operating a new website. The degree of involvement of an outside contractor will vary depending on the circumstances, including the site owner's budget and the sophistication of the overall development project. Deciding between in-house and outside hosting depends on the sophistication and purpose of the site. If the site owner has a small site with plain HTML pages, it can probably get away with hosting the site on its own or turning hosting responsibilities over to one of the online community sites that offer such services. On the other hand, if the site owner is seeking to establish a high-traffic and commerce-enabled site, it will need the processing and bandwidth capabilities that can only be offered through a big-time Web server located in the site owner's office or at an outside hosting service with the capabilities to support a big site.
7. The time and amount of difficulty associated with selecting a website developer will vary depending on a number of factors, including the in-house resources at the company and the type of project. The site owner should begin by taking steps to bolster its knowledge of the Internet through some form of self-directed site owner education program. The site owner should then begin to put together a list of desired features, functions, and graphics by conducting a review of comparable sites. The next step is for the site owner to develop a “request for proposal”, or “RFP” to send out to prospective developers to elicit bids or other indications of interest in taking on the site owner's project. Upon receipt of indications of interest, the site owner should carefully evaluate all prospective developers by conducting a due diligence investigation as well as meetings and interviews. The final step is negotiation of fees, design specifications, timetables and schedules for completion of the project and other terms of the development agreement (i.e., ownership rights, acceptance testing, maintenance and updating and warranties and indemnification).
8. Like development agreements, hosting agreements come in various shapes and forms. Hosting agreements may need to be modified to fit the specific requirements of the industry or market in which the site owner is engaged. For example, an agreement covering the hosting of an online mortgage services provider should take into account applicable regulatory requirements regarding content and use of visitor records. From the site owner's perspective, a comprehensive form of website hosting agreement should cover the hosting services; the compensation to be paid to the host for its services; acceptance procedures; representations and warranties from the host regarding performance of the site; and representations and warranties regarding non-disclosure of confidential information relating to the site and the materials provided by the site owner. Performance-related issues include response time and throughput capacity connectivity and system redundancy. Other concerns include portability, user support procedures and security procedures.
9. Some developers recommend a “soft launch,” in which the site is activated without advance publicity and the resultant limited usage provides a way to test the site and determine whether there are any problems. Once the bugs have been worked out, the promotional campaign can begin. The launch should always be preceded by a rigorous program of testing and acceptance by the site owner. The testing and acceptance procedures should be laid out in detail in the development agreement and sufficient time should be left for any required changes. The days and weeks prior to launch of the site should also include close attention to the details of developing and implementing a site promotion strategy that includes registration of the site with Web search engines; meta-tagging; participation in mailing lists and newsgroups; linking arrangements; and advertising. Finally, the site owner should confirm the readiness of desired payment systems for online transactions to be conducted through the website.
10. Launching and maintaining a commercial website that disseminates information to viewers regarding the products and services of the website owner raises a wide array of potential legal issues that need to be addressed in the design process. The situation becomes even more complex when website are used to conduct commercial transactions, such as online sales of products, and/or collect information from viewers to be used in the website owner’s marketing and other operational activities. Website owners must be concerned with the enforceability of online contracts; jurisdictional issues; laws and regulations pertaining to privacy and security, including rules regarding protection of specific classes of viewers such as children; registration of domain names; copyright and trademark law issues; potential liabilities from linking and framing, as well as the possibility that linking and framing activities of others will cause harm to the value of their sites; potential liabilities for defamation; the need to comply with consumer protection laws that have been extended to cover online sales activities; regulation of e-mail marketing communications and “spamming”, and state taxation of online sales activities. Site owners should always include one or more notices or disclaimers on their site to protect themselves from potential liabilities and to perfect their legal rights with respect to content that they might create and post on the site. Robust and comprehensive terms and conditions of use are essential and should be accompanied by copyright and trademark notices, linking notices, warranty notices, privacy and security policies, limitations on damages and disclaimers of third-party postings.
Once the ideas for new products have been identified and vetted and the product development process is largely completed, the full attention of the company should be focused on the activities directly related to promoting and selling the products and tending to the post-sale needs of customers with respect to service and support. In the initial stages of the company’s development reliance is often placed on one or more of the members of the founding group with significant experience in sales and marketing and, in fact, many companies are established in order to meet a need in a specific market where the founders have worked in the past. However, as time goes by, and the company matures and expands, experienced professionals will be brought in as senior managers of the sales function to create and develop sales channels for the company’s products. Even when companies have brilliant ideas about solutions for their customers, they will not be successful unless and until they figure out the best way to close the sale.
The International Center for Growth-Oriented Entrepreneurship has just released a chapter on “Introduction to Sales and Distribution Activities” from its Library of Resources for Growth-Oriented Entrepreneurs on Product Development and Commercialization which is available for free downloading and sharing by clicking here.
Some important things you need to know about sales and distribution activities include the following:
1. Among the key factors to consider when developing the initial sales and distribution strategy is the nature of the product and required sales effort and the size and composition of the target market. For example, if the target market for the initial product is relatively narrow or the sales effort is focused on a small number of potential original equipment manufacturers, then it is likely that the firm will elect to emphasize a direct selling effort using either in-house personnel or “manufacturers’ representatives” who are compensated on a commission-only basis. However, although it is certainly possible for one company to possess the financial and technical resources for internal development of products and direct sales of the products to end users without the use of intermediaries, it is more likely that one or more outside partners will eventually assist in distribution. Engaging with sales representatives and distributors allows companies to minimize the costs of creating and maintaining an internal sales force, the cost of which can exceed the cost of developing many products. Creation of an in-house sales team is also not warranted, or cost-effective, when the firm is entering a market in which the customer base is fragmented and individual sales transactions involve relatively small dollar amounts. In those situations, the firm must base its sales strategy on developing a network of independent sales representatives and/or distributors that already handle a broad line of similar products in the target market and who are willing to carry the company’s products as additional items.
2. The advantage of outsourcing sales activities is that sales representatives and distributors are in the business already, have established accounts, and can accelerate the time to market. Even if such sales representatives or distributors are asked to handle the company’s products on an exclusive basis, and not sell any other products, their experience will make the roll out much faster. A side benefit of hiring individual sales representatives as independent contractors is that they are not employees, and the restrictions in many jurisdictions on hiring, treatment and termination of employees do not apply. On the other hand, selling through outside agents can be a challenging undertaking for small firms with no track record and little initial bargaining power with the agents, particularly larger distributors who prefer to focus on products that have already established themselves as high volume items and the distributor’s sales personnel rarely have the time or qualifications to engage in the direct sales effort normally required to inform customers about the attributes of a new, and relatively unheralded, product. The relationship with any distributor will usually be conditioned upon attainment of agreed minimum sales volumes and slow moving products will generally be dropped by the distributor after an initial trial period.
3. Sales transactions will be governed by applicable laws and regulations pertaining to the content and enforceability of sales contract, such as Article Two of the Uniform Commercial Code in the United States. Other legal issues which should be considered when offering and selling goods, either directly or through intermediaries, include product liability laws; government product testing and safety requirements; antitrust laws; intellectual property laws; laws proscribing the use of deceptive acts and practices in the sale of goods; consumer credit laws and regulations; export controls and import laws of foreign countries in which selling activities are occurring; foreign laws relating to the relationship between foreign manufacturers and any local agents; and anti-bribery laws.
4. The sales and marketing functions can lower production costs by increasing demand for the product and the lower costs can be converted into higher margins or lower prices that contribute to even more success in the volume of sales and the level of market share. The sales and marketing functions can also create differentiation advantages by creating and implementing sales and marketing strategies for targeted customer groups, tailoring product designs and features to customer requirements, and developing and promoting brand names. The important elements of the business plan for the sales activities of any company should include a statement of the overall mission or purpose of the plan, identification and description of specific goals and objectives and an explanation of the strategies and tactics that will be deployed in order to achieve the stated goals and objectives. Creating an effective strategy calls for consideration of pricing, promotional techniques, negotiating strategies, opportunities for adding value for prospective customers, service and support capabilities, technology relating to sales activities, internal processes for reviewing and approving sales transactions, design of the sales organizational structure and implementation of effective sales compensation programs.
5. Use of sales agents varies depending on the industry, the specific market and competitive conditions; however, studies have found that a significant number of companies rely on outside sales agents for support in promoting and selling some or all of their products. Companies must consider a number of factors when choosing the appropriate mix of internal and external sales activities including cost and efficiencies; the nature of the market, sales force factors, internal expertise and resources and the nature of the product; and how much control the company needs over the sales process.
6. Outside sales relationships can take a variety of forms including sales agency arrangements, basic distributorship arrangements, original equipment manufacturer arrangements; manufacturing and distribution licenses and dealership arrangements. While many companies provide short-term rewards and bonuses for distributors that are successful in their sales activities, the most successful companies develop and implement formal reseller programs that form the basis for forging and maintaining long-term relationships based on shared visions and goals. Reseller programs should include various rewards and incentives including marketing dollars, product and training discounts and other support; however, it is important for the company to condition these items on attainment of clear and mutually agreed revenue and profitability requirements. In addition, once the reseller relationship is in place, the company should be prepared to work on building the relationship and maintaining close communications. Finally, the program should establish procedures for measuring the performance of resellers against the goals and expectations included in the program and conducting period reviews of the relationship.
7. The key design principals when designing the sales organization structure include building around the most strategically appropriate marketing dimension such as geography, products, market, types of sales activities or specific large customer accounts; striking the proper balance between the need for centralized authority and providing managers and salespersons at lower levels with sufficient latitude to make decisions needed to close sales transactions within acceptable parameters; and processes for coordinating activities among different sales groups working on common projects or types of accounts.
8. The enthusiasm and effectiveness of the sales team, as well as the way they go about organizing their sales presentation and negotiate with customers, are highly dependent on the sales compensation plans adopted by the company. When the sales compensation program is properly designed it will provide incentives for salespeople to act in ways that support the business objectives of the company and will clearly reward those salespeople who are able to make the type of contribution thought necessary by senior management for the company to succeed. Companies generally rely on some mix of base salary, commissions and sales prizes; however, practices vary by industry and it is important to carefully evaluate the plans offered by competitors as part of the process of designing a compensation plan. The terms and conditions of any commission or bonus plans should be clearly stated to avoid misunderstandings. Companies should revisit commission and bonus plans on a regular basis and should consider structuring such plans to create specific incentives for certain activities such as the pursuit of business from new accounts.
Companies that contract with a significant number of outside suppliers should prepare a formal policy that describes the procedures for initiation and management of supplier relationships and one of the areas that needs to be considered is the scope of any compliance obligations that will be imposed on suppliers, a topic that is discussed in this report.
The goal of growth-oriented entrepreneurs is, or should be, the creation of a sustainable business that will survive, thrive and grow. However, the reality is that the first few weeks and months often look more like an intense project management exercise focused on getting things up and running smoothly, getting a viable initial version of the product or service out the door and laying the foundation for the next step. Acknowledging this means that some of the following “project management tips for launching a startup” offered by Rocheleau, originally intended for web designers but applicable to many other types of startups, can be extremely practical and valuable:
- There will always seem to be more things to do than there are resources and time to do them and this means that special care must be taken to select the essential tasks that need to be completed before venturing into other areas.
- While creating a detailed business plan may be difficult at the startup stage, entrepreneurs must nonetheless invest adequate time and effort into identifying a target market share and setting some solid goals with respect to what the business hopes to achieve during the startup phase.
- Set aside time to engage in marketing and branding every day from the very beginning including a concerted effort to find where prospective customers congregate in the online world and spreading the word about the company’s new product or service. Don’t wait for them to find you—go out and grab their attention and curiosity. Make sure that a healthy balance is struck between “nitty gritty” development work and outreach into the customer community.
- While many companies swear by just getting the product “out there” and then relying on customers to help with fixes, the better course is often to be sure that every step of the development process is 100% focused on making sure that fundamental features are done well and provide immediate value without the customer having to wait for a subsequent version. At the same time, care must be taken not to get bogged down in minor pieces of the new product that will take a long time to “get right” and don’t really have a large impact on the customer experience.
- All products and services, regardless of complexity, begin with small and manageable pieces. Prior to launching the new company, sit down and collect all the ideas regarding possible features and make sure they are recorded somewhere for easy access. Then, select a handful of the most important and start with those, making sure they can be completed in a relatively short time frame to keep momentum going. In other words, strive to do what Rocheleau referred to as "breaking down larger ideas" and remember that if a reasonable timetable for completing a feature is more than a week or 10 days it might be a good idea to take a closer look to see if the team is being asked to do too much.
- Before things get started try and put together a competent team that can work together smoothly to accelerate the completion of all the initial steps mentioned above. This will save time and facilitate scaling of the business; however, in order to for all this to work the founders need to understand and apply best practices for team management.
- In addition to focusing on the initial development activities and marketing and branding, growth-oriented entrepreneurs need to keep an eye on where they want the company to be 12 to 24 months down the road and establish plateaus that represent validation of the development efforts and acceptance in the marketplace and stable launching pads for the next phase of growth. While “stability” seems at odds with “disruption”, startups that can get to a point where they can “catch their breath” will have a much greater chance at achieving long-term success.
- As mentioned above, offerings to customers should be complete and as close to “bug free” as possible; however, achieving those goals should not derail the company from working in quick development phases that get the offerings out into the market so that badly needed feedback can be gather quickly and changes in course can be made before too much time, capital and enthusiasm is wasted. As long as the offering has a solid set of core features, customers will generally take the time to contribute ideas and thoughtful criticism that they hope will lead to a new version that will be even more useful. Be sure to supplement the data you collect from your own users with research on how the market seemed to receive similar features from other firms. It makes sense to try and learn from the mistakes of others.
Source: J. Rocheleau, “Project Management Tips for Launching a Startup”, Web Design Ledger (blog), August 1, 2012, http://webdesignledger.com/tips/project-management-tips-for-launching-a-startup [accessed July 3, 2015].
Professional services providers, such as law and accounting firms, have evolved into complex and sophisticated business enterprises as competition from similar firms and other companies using new technologies has threatened their traditional positions in the marketplace. Law and accounting firms, as well as consultants and engineers, generally begin their client relationships with the collection of information about the business activities of the prospective client and the key leaders of the client (i.e., the founders, outside executives and key employees). In the first instance this information is used to develop a profile of the professional needs of the client and drive discussions regarding the scope and terms of the professional relationship between the parties. However, professional service providers should not ignore ancillary uses of the information collected from clients, always keeping in mind that such information must be maintained in confidence. Information provided by clients regarding the markets in which they are engaged can assist service providers in developing new services that might be useful to participants in those markets. In addition, understanding how clients have structured some of their key business relationships can provide service providers with ideas that they can use when providing counseling to other clients, assuming of course that the information received from clients can be used in a manner that does not compromise trust and confidentiality. Finally, professional service providers can benefit from observing how their clients choose to organize and manage specific functions and lay out and monitor their own strategic business plans.
While specific requirements must be adhered with respect to consumer warranties, warranty issues arise in any sale and purchase of goods transaction. The scope of the duties and obligations to the customer with respect to service and support is generally defined by warranties provided in connection with the original sale of the product. Since repairs covered by product warranties are essentially part of the purchase price, and cannot be charged for separately, manufacturers and distributors must carefully craft warranty provisions in the sale agreement.
The seller of the product, be it the original manufacturer or one of the distributors, should develop standard terms for the warranties relating to the product. When drafting warranties, consideration must be given to the impact of the Uniform Commercial Code (“UCC”), as well as the Magnuson-Moss Warranty Act in the case of consumer goods. From the perspective of the party responsible for complying with the warranties, a well-drafted clause will cover the following issues:
• A specific statement of any express warranties relating to the performance and quality of the product, coupled with an appropriate disclaimer of any other express warranties;
• A conspicuous disclaimer of any implied warranties of merchantability and fitness for a particular purpose;
• A concise specification of the period during which any warranties would be applicable (e.g., 90 days from the date of sale);
• A description of the purchaser's remedies for any breach of warranty, which should be exclusive and in lieu of any remedies available under the default provisions of the UCC.
While manufacturers and distributors will customarily disclaim any implied warranty of merchantability, the express warranties provided with the product will usually incorporate a number of the indicators of merchantability recognized in the UCC. Thus, for example, the warranties will often confirm that the product will:
• Pass without objection in the trade under the contract description;
• Be of fair or average quality within the description in the case of fungible goods (for example, grain);
• Be fit for the ordinary purposes for which such goods are used, although not necessarily the specific purposes of the customer;
• Run, within the agreement's permitted variations, of even kind, quality, and quantity;
• Be adequately contained, packaged, and labeled; and
• Conform to the promises or affirmations of fact made on the container or label, if any.
Express warranties can appear in a number of places, and marketing and sales personnel should be warned about the legal effect of statements made during negotiations with customers. In order to ensure that the warranty policies of the company are clear it is recommended that a single comprehensive statement of product warranties be created and conspicuously posted on the company website. Invoices for products sold by the company should either replicate the statement of product warranties precisely in its entirety, or clearly cross-reference to the website and incorporate the posted policy by reference.
Companies should also develop internal procedures for administration of warranty policies. This may include, among other things, a requirement that customers complete and return a warranty information form as a condition to effectiveness of the warranty coverage.
Clients involved in consumer sales transactions need to be mindful of all the federal and state law requirements applicable to consumer warranties. As you know, a warranty may be described as a contractual term concerning some aspect of a sale, such as title to the goods or their quality or quantity. For example, a warranty typically may warrant that a product will be free from defects for a specified period of time. The most important federal statute covering the law of consumer warranties is the Magnuson-Moss Warranty Federal Trade Commission Improvement Act (15 U.S.C.A. §§ 2301 et seq.), which addresses products liability arising out of the breach of specific warranties that come up in the course of consumer sales. State law is also an important consideration when drafting consumer warranties and any warranties provided in consumer transactions must be drafted to meet both federal and applicable state requirements.
Understanding the case law and regulatory regime applicable to consumer product warranties, and drafting effective disclosures of consumer warranties, is an activity that should be carried out as part of the larger process of documents sales of goods transactions and establishing procedures for providing service and other support to customers. In managing and completing the steps associate with preparing an effective consumer product warranty statement, the following checklist may be helpful:
- Determine the goods that are to be sold under the agreement;
- Review relevant laws and tax regulations relating to consumer sales arrangements;
- Prepare the initial draft of the warranty statement;
- Determine whether other forms or agreements are required to complete the transaction, such as service contracts or credit documents, and draft such agreements;
- Take all steps required to insure compliance with all federal and state law requirements relating to the form and content of consumer warranties;
- Circulate drafts of all documents to all parties, collect comments, and prepare the final form of documents for execution or public distribution;
An excellent additional resource to recommend to clients with respect to understanding federal consumer warranty law is the Federal Trade Commission publication titled “A Businessperson’s Guide to Federal Warranty Law”.