Is It Time For Rodmakers to Get Out of the Warranty Business?

Posted on June 16, 2009 by Marshall Cutchin

Are warranties leading to unnecessarily high prices for fly fishers and making it difficult for rodmakers to deliver the best product and service possible? Yesterday we received an open letter to fly rod makers from fly fishing writer and insurance attorney Zach Matthews, who believes that warranties on fly rods do little more than burden manufacturers and raise fly rod prices. His suggestion? Look to classic property insurance.
As Matthews says, “Insurance against loss instead of just breakage is nothing to shake a stick at; most people would immediately see why this is a good thing to have.”

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  • Adam McDowell

    Interesting Perspective Zach, I do have two questions though;
    - If warranties were to go away, do you think that you will really see rod manufacturers drop high end rod prices back down to the $595 range that they were 10 years ago, or will the savings be absorbed as profit with no price change?
    - You will also probably never see another high end rod on a guide’s boat that will be available for you to use.

  • bob

    I always did wonder what portion/percentage of my fly rod dollars went toward covering warranty claims. Anyone have a clue?
    headforthetropics@gmail.com

  • http://www.busterwantstofish.com Smithhammer

    I think Zach raises some interesting points, and I’ve also always thought that the unconditional warranties on rods were kind of ridiculous and an unnecessary burden on the company. But for better or worse, that’s the standard that the industry has set for itself. And the realist in me says that the notion that in the future manufacturers are going to opt for less comprehensive warranties, and that as a result the consumer will then see a corresponding drop in retail prices, seems pretty far-fetched, to be honest. I don’t see companies scaling back on what they currently charge for rods, regardless of a change in behind-the-scenes costs.
    In addition, the assumption is made that manufacturers are spending lots of time on repairs. To the best of my knowledge, most major manufacturers these days simply replace broken rod sections rather than attempt to repair them, which they obviously do because it is a lot more cost and time-effective. They make up additional sections during production and keep them on hand for future replacements. Certainly there are costs associated with this additional manufacturing as well, but I actually think this is a good thing. Why? Because it means quick turnaround times on broken rods. And one major factor in customer loyalty is the experience one goes through when a repair is needed. If owner #1 is waiting months (through fishing season) to get a rod back from company A, and happens to chat with owner #2 who just got their broken rod back from Company B in ten days, ready to be used again, you can probably predict which company owner #1 is going to seriously consider for their next rod.
    On top of that, the assumption for paying a premium on a rod is that you are paying for future repairs upfront. So let’s say a company sells 10 top of the line rods. How many of those 10 rods will end up needing to be repaired at some point during their lifetime – let’s just say 6? I’m truthfully just guessing here, but if that’s somewhat accurate, then it means that the company has effectively charged upfront for repairs on 4 rods out of 10 that never actually needed to be repaired. Over a thousand rods, that’s 400. In other words, as is the case in much of the insurance industry, there is profit made on charging for insurance upfront which will never be used by all consumers.
    So I think Zach raises some interesting points, and I’d be curious to hear an industry response (to the validity, or not, of my points as well), but I really have a hard time believing anything will change. Unconditional warranties have become the standard, and they have become so because the first companies that offered them held a competitive edge over those that didn’t, which is why the rest of the industry was forced to adopt them as well. Given that, the companies that have found cost-effective ways of quick turn arounds on repairs have an additional competitive edge over those that don’t/can’t. Such is the hard truth of the free marketplace.

  • Rick Pope

    Warranties are actually very simple – but the solution might be a bit more complex than Zach suggests. The complexity comes from the initial sin of creating an actuarial liability without reserving for it. I would not throw rod companies under the bus since, as others have said, as our Social Security system is funded the same way … liabilities are covered through current contributions (or current sales in the case of rod warranties). Conversely, insurance premiums are used to buy assets that at least actuarily (best assumptions) will fund the payments made to policy holders over time. What the industry seems to have – and I only know our numbers, not anyone else’s – is the equivalent of an unfunded liability on rods that have been made/sold over some 5 to 10 year period, at which point the warranties repairs seem to slow down a bit. So I believe it is the universe of rods a company has in the market that must be repaired with current sales that must be addressed first. Other than me struggling a bit with the intriguing concept of tiered pricing, dealing with past sins is likely the complex problem that needs to be addressed.
    In handling future and current warranty expenses internally, there are simple solutions as I suggested. Charge a “deductible” that covers the cost of repair, build a reserve with sale proceeds and defease the liability, or do some combination of the two. We were lucky in that when we started in the mid 90′s, rod warranty insanity was at it’s peak. We had a chance to evaluate risks and options and determined we would do both. Other than what has probably been a doubling of shipping and packaging costs since the mid 90s, our assumptions have been good enough to to date.
    Otherwise, Zach is right in that insurance could be either priced or bought separately. Of course as an individual, the insurer might want a doctor’s visit (now cough), how many days/year on the water do you spend, are you a guide, a lodge, and how many rods have you broken in your life, etc. Seriously, if I were challenged to cure an unfunded liability as a company, I would first make some assumptions on the number of rods in the market that are being used and then apply my warranty repair numbers against this universe. Add the current year sales and drop year 10 (or 15 based on what assumptions seem valid). You should get a reasonable picture of what to expect both per year and in total as you experience fluctuations in sales over time. This liability must be then funded either with cash or securities, although I wouldn’t suggest using high yield CDOs backed by sub-prime mortgages with credit default swaps … Where is my BAILOUT money!!! A third party insurer would want the same analysis if partnering with a rod manufacturer. Bottom line, insurance companies are not necessarily the sharpest knife in the drawer either – but they might be a candidate for a rod company struggling with such liabilities.
    Finally, I think that rod companies deserve great respect in that they have done an admirable job of making what consumers wanted to buy in terms of price, performance and warranty. Further, I know of no industry that has such a high standard of customer service. Just about everyone I’ve met in the business shares a common passion for fly fishing and as such, we’re all brothers in arms. Criticism is what makes us better (thanks Zach) and respect is what motivates us to listen.
    Rick

  • Marshall Cutchin

    Just as a brief addendum to my intro to Zach’s piece, I don’t think Zach is implying that rods are too expensive or should be lowered by the amount of warranty costs, only that the warranty costs — if spread across a larger insured base — would inevitably be lower for both anglers and manufacturers.

  • jon conner

    All this discussion fails to mention that a lot of people seem to use use rods in ways that are clearly risky simply because there is no downside for breaking a rod,especially in saltwater boat fishing where hitting the gunwhales and high sticking are common. I think the warranties are definitely promoting and encouraging a cavalier attitude among owners and certainly guides who hand expensive rods to clients who may have next to no idea of how to use the rod properly while fighting heavy fish.

  • ray hafsten

    Two tier pricing with and without…as I recall on certain Winston blanks that I inquired about I got pricing with and without. Since I’ve never broken a rod on a fish and I understand and accept the risk of my negligence, I opted for the latter.

  • http://kenmorrow.blogspot.com Ken Morrow

    If one actually understands the true costs of warranty fulfillment in the fly rod business, he realizes what a waste of time this subject is.
    Most of the mfgs whom I have had discussions with about the warranty aspect of their businesses report that it is either a true break-even proposition for them, or they view it as a revenue stream (which I suspect is actually more true than most will admit). So why in the heck would they want to change that…unless it was to make even more money by collecting commissions off of a fly rod insurance policy that would actually only serve to drive up costs to the consumer while delivering inferior service and protection?

  • Josh Wainwright

    I think that everyone is missing the most salient point here.
    Warranties have always been a simple ‘;cost of doing business.
    Additionally, and MOST importantly, they are a significant part of the PR segment of their advertising efforts.
    Fly Fishing, and its’ devotees are a tiny niche in the fishing industry. Any ‘word of mouth’ praise will go further in this population than most others.
    I have, for years spoken with other Fly Guys about the great service that Loomis did for me while I was on vacation on Martha’s Vineyard. My 10wt tip broke on a very large bluefish and I did not have a 10wt backup. I FedExed the rod, which was about eight years old, to them and they offered me a GLX as a replacement for a hundred bucks. The new rod was sent to me and I received it the next day. It is this sort of anecdotal information that makes an exceptional warranty worth the while of manufacturers.
    I have also had similar help from Orvis and LL Bean.

  • Tim Peters

    I have used the warranty programs of several rod makers with unconditional warranty over the 45 year period that I have been fishing. The charges vary from $25.00 to half the current retail value of the rod plus shipping and handling. There is an appropriate cost to the rod owner in every case. Mr. Matthews is an insurance attorney and his bias is apparent; buy personal insurance. I am sure that Mr. Matthews clients are pleased that he is selling more product. The system is not broke, so why fix it. We already pay the insurance or “warranty” at the time of purchase. The price would not drop one penny.

  • http://www.busterwantstofish.com Smithhammer

    “Customers really aren’t getting the best deal they could. The market is inefficient, meaning the careful customers are having to cover for the klutzes.”
    And this is different than insurance how?

  • Sylvaneous

    First, know that warrantees are necessary for rod companies to sell $600 to $800 match sticks. A buyer and user needs to know that they are not out on a limb and on their own when they snap a tip. I have broken 4 rods in my life. All were returned for some fee for replacement. All but one was broken while fishing. Having something as fragile and expensive as a rod that is to be SWUNG is, in itself, a liability that must be insured somehow. A fairly significant return fee; $40 or $60 along with the high initial price of the rod works pretty well at preventing a lot of destructive schmuks from putting premium manufacterers on the hook for frivolous warrantee repairs. Simply, again, a $700 bill for a rod will entirely prevent someone like me from even getting into the arguement. Many won’t buy the rod in the first place. Drop the price a bit and up the repair/replacement cost and then see if sales don’t rise.

  • Greg kemp

    Why not just offer a set price repar schedule for each rod that does cover all the costs . eg tip section repair $ 80 mid section repair $ 85 , Butt section repair $ 120 . That way no one pays for anything they dont need , or dont deserve to pay for . It also provides an incentive to take care with your fly rod .

  • http://nautilusreels.com K Mustad

    Greg. Best comment yet. I think the unconditional warranty is detrimental to US manufacturers especially. It is in essence a license to get a new rod whenever you want. What would stop me from breaking my 22 year old Orvis HLS and sending it in for repair? they would hand me a new somethingorother (this was their high end rod at the time). Great deal some may think.
    I used the rod for a good 10 years thinking it was great, and have bought replacement rods many times over. I feeel I got what I paid for and more. While it was my go to rod I would have sent it in for repair, but not any longer. But I know of too many people that are serail rodbreakers and strive for “free” upgrades, new cork grips, etc…
    As in all aspects of life, the bad guys ruin it for the good guys. I think we need the incentive you mentioned.