LOS GATOS, CA--(Marketwired - Oct 4, 2016) - Warranty fraud. Service abuse. Call it what you want, the fact remains that when services are delivered to a customer that a customer is not entitled to, tech manufacturers and service providers lose big. The nature of service abuse makes it a difficult problem to quantify -- but the consequences are very clear: a decline in customer confidence and company reputation, increased costs of products and services for end users, loss of revenue, increased gray market activity, loss of new product sales, and increased R&D costs. AGMA, a non-profit organization and the largest group solely focused on Intellectual Property protection in the high-tech industry, strongly encourages manufacturers to implement a service and warranty abuse program centered on detection, reaction and prevention to combat this type of fraud.
Entitlement and Emerging Threats
From PCs and printers to consumer appliances such as TVs or refrigerators -- any company producing goods that have the possibility to fail or require repair is exposed to warranty and service abuse.
When categorizing a transaction as service and/or warranty abuse, entitlement is the key. Entitlement is the difference between a legitimate service being provided to the customer and a fraudulent claim being made. Does the customer have the right to a warranty associated with the product or service? A legal warranty clearly spells out what the customer has purchased in terms of what will be provided service-wise.
As the rate of criminal activities increases due to economic conditions and other factors, so too do the number of illegitimate warranty claims to obtain free services or products. Fraudsters are getting more creative and sophisticated with their schemes to exploit manufacturers' weaknesses -- the time is now to implement (or reinforce) a program to lessen the effects of service and warranty abuse.
What You Don't Know Can Hurt You
Don't think you have a warranty and service abuse problem? Think again. According to AGMA president Sally Nguyen, "If you are seeing or suspecting a certain level of fraudulent warranty or service claims, know that those are very likely just the tip of the iceberg. In other words, you know what you are seeing -- but you don't know what you are not seeing. What's more, the absence of real efforts to mitigate these types of threats can actually encourage fraudsters." Nguyen notes that following best practices in three crucial areas will help lessen your exposure.
The ability to detect fraudulent activity at an early stage is critical to the success of any service and warranty abuse program -- and crucial to limiting losses. If you are only able to detect abuse when it is already happening on a large scale, you have already lost a lot. According to AGMA, the paradigm needs to be shifted from investigating events after the fact to preventing the fraud before it happens. Having the right detection capabilities in place will help with this as well as highlight areas of risk. AGMA recommends the following detection strategies as part of an overall program:
- Implement metrics and measures to track fraud
- Monitor metrics to identify unusual activity
- Regularly audit channel partners
- Think 'outside of the box' regarding your detection processes. They should be ever-evolving to keep up with the increasing creativity of fraudsters
The ability to quickly stop any abuse once it is detected is another key component of a successful overall program. Appropriate reactions when abuse is detected include:
- Investigate channel partners
- Visit partners with high numbers of claims being originated and ask questions
- Analyze abuse cases further
- Determine whether fraud is intentional or unintentional
- If intentional fraud is committed by a partner or customer, criminal charges can be filed (a litigation process needs to be in place)
If people and processes were perfect, service and warranty abuse could not occur. Because this is not the case, AGMA recommends that the following actions are taken to prevent future abuse:
- Make warranty terms and conditions exceedingly clear
- Impose strong contract liability provisions
- Set clear expectations regarding legitimate vs. non-legitimate services
- Learn from the abuses that occur, as this is an opportunity to shore up weaknesses
"Instituting detection, reaction and prevention best practices allows for a strong line of defense against fraud," said Nguyen. "AGMA plays a key role in helping our member companies -- and technology companies in general -- get educated on the biggest issues threatening IP."
As an industry association, AGMA is chartered with addressing key threats to intellectual property in the high-tech industry. To learn more about AGMA, please visit www.agmaglobal.org.
AGMA is a non-profit organization comprised of influential companies in the technology sector. Incorporated in 2001, AGMA's mission is to address gray market fraud, parallel imports, counterfeiting, software piracy, and service abuse of technology products around the globe. The organization's goals are to protect intellectual property and authorized distribution channels, improve customer satisfaction and preserve brand integrity.
AGMA welcomes any technology manufacturer, as well as persons or entities that own or hold intellectual property rights to finished goods outside the technology industry; product and service providers; government and law enforcement officials who provide goods and/or services to combat gray market fraud, counterfeiting and warranty and service abuse threats. AGMA uses a variety of avenues to cultivate change in the marketplace, including event speaking, educational initiatives, benchmark studies, industry guidelines, and, where appropriate, public policy advocacy. To learn more about AGMA's initiatives or to become a member, please visit www.agmaglobal.org or follow them on Twitter.