In an interesting stretch of Warranty policy, it was recently reported that LG Refrigerators have arbitration notices printed on the cardboard box stating that in the event of a product failure, the customer agrees to an arbitration and not a lawsuit. It made me think: Was the notice put to cover for poor reliability or is this something else?
Warranty contracts are drafted by the legal team in an organization with inputs from business and engineering teams. The product team must feel comfortable about their design to perform well within the stated warranty period. When a product is designed to last 97% of the time above 1 year, then its warranty period of one year makes total economic sense. If the product does not meet the reliability goal, then the warranty claims are an invitation to incur business losses. What would the firm do in this case? Make efforts to improve reliability or change warranty terms.
Redesigning takes resources and loosening warranty claims will not compare to the competitor’s offerings. Given this dilemma, it looks like LG had chosen to limit the warranty damages by legal maneuvers instead of improving reliability. Is this a masterful strategy or a last-ditch effort? The legal process is still underway in courts so the cost penalty (if any) is unknown as of now. But judging from the customer’s response that they had involuntarily agreed to an arbitration notice it looks like it has backfired from their customers.
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