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Chapter - II

THEORETICAL AND LEGAL FRAMEWORK OF THE STUDY

2.1 Introduction

Two decades of liberalization policies have initiated a series of structural changes

in the Indian business environment, integrating marketing concepts prevalent in

the West to the Indian business as well. Many of those practices which were

unheard of in India till then have prompted the business community to adapt,

innovate and compete to sustain in the environment, making the background

settings strong enough for a new era of consumerism here, with no going back.

Indulging in the comforts of modern gadgets which they had never tested or

tasted before have changed the Indian consumers never like before, resulting in a

new class of insatiable, ever demanding consumers, who give the marketers a run

for their money to sustain in the market. Markets have become more competitive,

quality of goods and services has become comparable to international standards;

and to top it all, the consumers have become quality conscious and have started

asserting their rights as consumers. Though they are now ready to pay a premium

to get the best products, they demand full value for their money in terms of total

assurance for the quality, durability and service support throughout the life of the

products.

Manufacturers no more can dump their products on gullible consumers and flee

from the market with the money; rather, they have to continue to be responsible

to their product offers, accountable for the promises made, answerable for the

complications of the products; and to top it all- manufacturers are now legally

liable for any or all of these omissions more than ever before. Consumer rights

awareness is on the rise; product liability cases as well as consumer dispute

complaints are now not rare, and courts have started awarding exemplary

damages for established product liability cases. Consumer determination for

quality and durability of the products are here to stay more vigorously; and these

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two have gained customer recognition and status as good product differentiators.

Though better quality and durability can be communicated and advertised in

several ways, the most popular method is proposed as the one using product

warrantees. Manufacturers of durable goods cannot anymore survive in the

extremely competitive market without properly recognizing the marketing

possibility of product warrantees, along with their time-honored legal

implications.

2.2.1 Products and their classification:

Philip Kotler defined a product as anything that can be offered to satisfy a need or

a want. (Kotler, 1996) It could be any tangible or intangible offering that might

satisfy the needs or aspirations of a consumer. To put it shortly, a product means

the need satisfying offering of a firm. A product could be visualized at three

levels. The first and most fundamental is the core product, the enjoyment of the

very benefit for which the consumer basically pays for it and purchases the

product. This benefit could be initially considered as a generic one as it could

differ for different types of customers. The basic reason for buying a car could be

only to enjoy its generic benefit of comfortable travel. At the next level, a product

could be identified with its tangible aspects in the form of its features, style,

packaging, quality etc. The reason for buying a specific model of a car could be

fuel economy for one customer whereas; it could be its safety features or its

image for another consumer to go for that brand. At a third level, a product could

be acquired by consumers because of its augmented services. For instance,

customers could go for a particular brand of a car because of its brand image,

better warranty, and superior after sales support. The total product is the

consolidation of all these offers at the different levels of the consumer needs

sought to be satisfied by the product.

Most products are a combination of tangible and intangible elements. Any

product is basically a good or a service, depending on the extent of tangible or

intangible element in it. For a novice, a product that is wholly tangible could be

considered as a pure good; whereas a product that is entirely intangible could be

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viewed as a pure service. But in actual practice, there is a component of

tangibility as well as intangibility in every good and service- though its

proportion varies from a good to a service. The element of tangibility of a good is

what is obtained and owned when you buy it; whereas, in case of a service which

is essentially intangible, the customer cannot keep it or store it; as a service could

only be experienced, used or consumed. Most customers consider about a product

in terms of the total satisfaction it provides. That satisfaction may require a total

product offering that is really a combination of excellent service, a physical good

with the right features, useful instructions, a convenient package, a trustworthy

warranty, and perhaps even a familiar name that has satisfied the consumer in the

past. (Perreault& McCarthy, 2005)

Products could be of three kinds generally; manufactured goods, agricultural

goods and natural raw materials. Manufactured goods may be consumer goods

needed for the use or consumption by consumers or may be industrial goods

needed for use by producers in the process of production of other products or

services. Agricultural goods may be in the form of raw materials for industry or

consumer goods for immediate consumption. Natural raw materials are the free

gifts of nature and they are the raw materials of the industry.

2.2.2 Classification of consumer goods

Consumer products could be classified in several ways depending on the basis of

its characteristics under observation. Prof M T Copeland developed a three- fold

classification of consumer goods based on typical shopping habits of consumers:

how, when and where consumers usually buy commodities. These three

categories of consumer goods are Convenience goods, shopping goods and

specialty goods. The distinction between convenience goods and shopping goods

is clear and easily understandable. But the distinction between shopping goods

and specialty goods could not be easily drawn out as many consumer goods could

be classified in both the categories.

Convenience goods: Convenience goods are products a consumer needs but is not

willing to spend much time or effort for shopping for. The consumers purchase

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convenience goods frequently with a minimum of effort. They will be usually

purchased in small quantities and demand minimum exertion, time and shopping for

doing the purchase. They require little service or selling and may even be bought by

habit. Newspapers, soaps, snacks, milk, tobacco products etc constitute examples.

Convenience goods can be further sub classified into three categories; staples,

impulse goods and emergency goods. Staples are goods consumers purchase on a

regular basis by its brand. They are bought often, routinely, and without much

thought, like those goods which are bought almost every day in almost every

household. Examples include Colgate toothpaste, Cinthol soap etc. Impulse goods

are products that are purchased quickly. They are purchased without any planning or

search effort, and are bought because of a strongly felt need. Impulse goods are

things that the customer had not planned to buy, decide to buy on sight, may have

bought the same way many times before, and wants right now. If the buyer does not

see an impulse good at the right time, the sale may be lost. Chocolates, candies,

biscuits etc come under this category. Emergency goods are products that are

purchased when a need becomes urgent, for example the need to buy an umbrella

becomes urgent with the onset of monsoon. The customer does not have time to shop

around when a thunderstorm begins. The price of the umbrella would not be

important then. (Perreault & McCarthy, 2005)

Shopping goods: Shopping goods are goods that the consumers buy only after

performing an appraisal and comparison with competing products on the basis of

their required quality, expected style, estimated price and overall suitability.

Buyers will effect a purchase only after considerable search efforts; and they

won’t even mind postponing the purchase till they identify the goods that meet

their judgment. Garments, furniture, electronic appliances etc would come under

this category.

Shopping goods could be of two types, Homogenous Shopping goods and

Heterogeneous Shopping goods. Homogeneous Shopping goods are similar in

quality but different enough in price to justify shopping comparisons. They are

goods the customer sees as basically the same and wants at the lowest price.

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When consumers feel that most of the brands of televisions, washing machines

etc are very similar and they don’t consider the differences as real or important in

terms of the value they seek, they shop for the best price. Heterogeneous

Shopping goods are shopping products the customer sees as different and wants

to inspect for quality and suitability. They differ in terms of quality, style,

product features and services that may be more important than price. Usually, the

customer seeks help from a knowledgeable sales person. Once he finds the right

product, price may not matter, as long as it is reasonable.

Specialty goods: Specialty goods have unique characteristics or brand

identification for which a sufficient number of buyers are willing to make a

special effort for purchasing. Shopping for a specialty good does not mean

comparing- the buyer wants that special product and is willing to search for it. It

is the customer’s willingness to search and not the extent of search that makes on

a specialty product. Any branded good that customers insist on by its name is a

specialty product. Usually these are luxury products and act as important life

style images for the consumers and these will be available only in specialty

stores. Cars, costly suits etc come under this category and the consumers will be

ready to spend time and take extra effort to shop these kinds of products.

Specialty goods do not involve making comparisons; buyers need to know only

the place where these are exclusively available. (Perreault& McCarthy, 2005)

Unsought goods: Unsought goods are those goods which the consumers either do

not know about or do not usually seek to buy. Marketers have to take extra

selling efforts to enthuse the consumers and prompt them to buy these.

Encyclopedias, health insurance etc constitute instances of unsought goods.

Yet another classification of consumer goods on the basis of durability and

tangibility categorize products into:

1. Durable goods: They are products that normally survive many uses.

Durable goods are those which don’t wear out quickly, yielding utility

over time rather than at once. They are usually high value, long lasting

products like Refrigerators, Washing Machines, Television, Oven, Air

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conditioners etc. They can be further classified as either white goods, such

as refrigerators, washing machines and air conditioners or brown goods

such as blenders, cooking ranges and microwaves or consumer electronics

such as televisions and DVD players. Such costlier items typically

continue to be useable for three years at least and are characterized by

long inter- purchase intervals.

2. Non durable goods: Consumer non durable goods are products which are

normally consumed in one or a few uses. Since the goods are consumed

quickly, their purchases will happen very frequently. Non- durable goods

are usually referred to as Fast Moving Consumer Goods (FMCGs)

3. Services: Services constitute products which are intangible, inseparable,

variable and perishable.

Since the products are going to be with the consumers for varying times and the

products are expected to survive variable uses, the concerns of the consumers while

shopping for these products will be naturally differing very much, warranting an

altogether distinctive treatment by the marketer while strategizing for the

marketing planning of products coming under this categorization. For instance,

durable products normally require more personal selling and service, command a

higher margin, and require more seller guarantees; whereas for non durable

products which will be consumed more frequently, the strategy should be to make

these available in many locations, charge only a small margin, and advertise

heavily to induce trial use and build preference. The buyer behaviour also varies in

these different buying situations; the consumers of durable goods having high-

cost, high- risk, irregular purchases (which is known as high- involvement

purchase) in contrast with the consumers of non- durable goods doing regular, low-

cost purchases (which is known as routinized response behaviour).

For all these reasons, the consumers of durable goods will look for added

reinforcement and reiteration to arrive at a decision to purchase a specific brand.

This gives a formidable challenge to the marketing managers to devise innovative

and exclusive sales promotion strategies for durable goods, but without affecting

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their profitability. Clearly, this enhances the scope of product warrantees as

innovative sales promotional tools, as product warrantees are non- price

promotional tools which could be implemented without eroding the profit figures

or diluting the brand equity of the product.

2.3.1 Consumer durable goods industry in India

The Indian consumer durables industry has witnessed significant changes in the

past couple of years. Changing lifestyle, higher disposable income coupled with

greater affordability and a surge in advertising has been instrumental in bringing

about a sea change in the consumer behavior pattern. Apart from steady income

gains, easier consumer financing schemes, exchange offers and hire-purchase

schemes have also become major drivers in the consumer durables industry.

Marketers today are becoming more and more innovatively consumer- centric in

the implementation of their strategies.

India's consumer markets are all set to blow up during 2000-2025, wherein the total

consumption in the country is likely to quadruple making it the fifth largest

consumer market by 2025, according to McKinsey Global Institute (MGI). MGI

expects India's real gross domestic product (GDP) to grow at 7.3 per cent annually

through 2025.

In the light of such positive future aspects in the Indian business environment, it

can be easily assumed why India is increasingly attracting foreign marketers of

durable goods and facilitating new avenues of growth for the domestic

manufacturers of durable goods as well.

A report by National Sample Survey Office (NSSO) has revealed that rural

households' expenditure on durable goods has increased from 3.1 per cent (1987-

88) to 4.8 per cent (2009-10), confirming that the expenditure on durable goods has

increased considerably over the past few decades. In the case of more expensive

consumer goods, such as refrigerators, washing machines, colour televisions and

personal computers, durable goods’ retailers are joining forces with banks and

finance companies to market their goods more aggressively, particularly among the

burgeoning middle class and rural affluent class of India. In addition, changes in

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Industrial policy have resulted in zero customs duty on imports of all electronic

equipments, thereby improving the pricing and affordability of imported goods.

India’s growth trajectory is highly driven by the development of the rural

consumers. Players in various industries such as retail, fast moving consumer

goods (FMCG), consumer durables, automobiles et al, are looking towards the

untapped potential this rural masses possess. (Panwar, 2004)

The household consumer expenditure survey for 2009-10, released by the National

Sample Survey Office (NSSO), reveals that rural Indian households are spending

more on consumer goods like durables, beverages and services as compared to

their expenses on such things five years back. The 66th round of the National

Sample Survey showed that monthly per capita expenditure (MPCE) in rural India

was Rs 953.05 (US$ 20.69) in 2009-10, an incredible increase of 64.6 per cent

from 2004-05. (Panwar, 2004)

The Indian consumer base is highly supported by the rural population (about 70 per

cent of the country’s population), which drives revenues for many major

conglomerates operating in diverse markets in India. The Ministry of Rural

Development is presently implementing schemes like the Pradhan Mantri Gram

Sadak Yojana, Indira Awas Yojana, Mahatma Gandhi National Rural Employment

Guarantee Scheme (MGNREGS) in various states with an annual outlay of around

Rs 100,000 crore (US$ 21.71 billion), which has unprecedently led to the rise of

the income and savings of the rural consumers. For many years, rural India was not

much acknowledged by the manufacturers or the retailers. But as the ‘bottom of the

pyramid’ is getting empowered with education, higher purchasing power and

awareness, companies are looking for opportunities in hinterlands. Rural India,

along with tier-II and tier-III towns, is also catching up with the urban population

in e-commerce. The fourth edition of e-bay census has revealed that women in

these areas are increasingly becoming net-savvy to purchase lifestyle and

electronics products online. It also stated that online trading, through e- Bay, in

rural India has jumped up to 9 per cent of total sales in 2011 from 5 per cent in

2010. In the light of such optimistic outlook in the Indian business environment, it

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can be surely assumed that India is progressively facilitating new avenues of

growth for the durable goods market, which is ultimately proving beneficial for the

entire Indian consumers. (Panwar, 2004)

According to the IBEF (India Brand Equity Foundation) and KPMG Advisory

Services Private Limited study of October 2007 on Consumer Durables, the Indian

Consumer Durables Industry can be segmented into 3 Key Groups: White goods,

Brown goods and consumer electronic goods.

1. White Goods: comprising of Refrigerators, Washing Machines, Air

Conditioners and Speakers & Audio Equipments.

2. Brown Goods / Kitchen Appliances: consisting of Mixers, Grinders,

Microwave Ovens, Electric Fans, Cooking Range, Chimneys and Iron Box.

3. Consumer Electronics Goods: including Mobile Phones, Televisions, MP3

Players, DVD Players and VCD Players

4. Other Goods: such as Watches, Jewelry etc.

The study has identified Indian Consumer Durables Industry as one of the fastest

growing industries in India with Industry sales of US$ 4.5 billion in value and

more than 7 million units in volume terms (in 2006-07). The Share by Volume (%)

of key consumer durable goods in India when contrasted with the projected growth

rates for different product ranges offers very attractive marketing opportunities for

Consumer Durables Goods Industry in India.

A strong growth is expected across all key segments of Consumer durables Goods

in India with a projected growth rates (as of 2006-07) for different product ranges

as follows:

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Table 2.1 Table showing the growth rate of certain key durables in India.

Sl No Product Share by Volume (%) Projected Growth Rate

1 Colour TVs 30% 25-30%

2 Refrigerators 18% 18-22%

3 Washing Machines 5% 15-20%

4 Air Conditioners 13% 32-35%

5 Others 34% 35-40%

The biggest threats to the Indian domestic durable goods industry are demand

issues due to competition from cheap imported goods, mainly from the China and

the influx of spurious goods. On the demand side, customers have increasing

choice from both domestically produced and imported goods, with similar

features. This homogeneity makes it difficult for players to remain ahead of the

competition.

Multinational Companies hold an edge over their Indian counterparts in terms of

superior technology combined with a steady flow of capital, while domestic

companies compete on the basis of their well- acknowledged brands, an extensive

distribution network and an insight in local market conditions. The largest MNCs

incorporated in India are Whirlpool India, LG India, Samsung India and Sony

India and home grown brands are Videocon, Godrej Industries, IFB, TTK

Prestige, Hawkins, Bajaj Electricals, Blue Star, Videocon, MIRC Electronics and

Titan.

India’s consumer durables market is anticipated to expand by 40 per cent in

2011-12, according to a study by a leading industry body - ‘Rise of Consumer

Durables in Rural India’. Higher brand awareness, increase in disposable

incomes, availability of wider options in markets, changing lifestyle and

demographics are some of the major drivers, among others, that have propelled

Indian consumer markets over the last decade. The progress can also be largely

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attributed to calculative liberalized policies implemented by the government that

have not only encouraged foreign companies to foray into India, but have also

taken care of domestic players and their growth. (The New Indian Express,

Business Kerala, 6th August 2012)

Certain numbers that indicate elevation of lifestyles among Indians, that has

driven consumerism directly or indirectly, are:

1. Percentage of Indian households (both rural and urban) with electricity for

domestic use showed a significant increase from 64 per cent in 2002 to 75

per cent in 2008-09, as per the report prepared by the Institute for Applied

Manpower Research under the Planning Commission of India.

2. Confirming that the expenditure on non-food items like durable goods has

increased over the past few decades, a report by National Sample Survey

Office (NSSO) has revealed that the rural households’ expenditure on

durable goods has increased from 3.1 per cent (1987-88) to 4.8 per cent

(2009-10) while that of urban households increased from 4.1 per cent

(1987-88) to 6.7 per cent (2009-10).

The consumer electronics market in India is valued at around US$ 10.4 billion

currently. The September 2011 Index of Industrial Production (IIP) has stated

that consumer durables segment has registered a good growth of 8.7 per cent

during the reported month. Indian cities are poised to generate 70 per cent of the

net new jobs created to 2030, produce around 70 per cent of the Gross Domestic

Product (GDP) and steer a four-time increase in per capita income across the

country, according to the estimates made by McKinsey Global Institute (MGI).

India's consumer markets are set explode during 2000-2025, wherein the total

consumption in the country is likely to quadruple making it the fifth largest

consumer market by 2025. MGI expects India's real GDP to grow at 7.3 per cent

annually through 2025, wherein urban India will account for over two-thirds of

the market growth.

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2.4.1 Marketing of consumer durable goods

Firms that sell consumer durable products face two unique challenges: (1)

Durables typically cost substantially more than nondurable products and thus

entail greater financial risk for consumers, and (2) the purchase of durable

products is characterized by a buyer purchasing a product and then staying away

from the market for a long period, only to return to the market for a short time

either to purchase an additional item or to replace an existing durable. Therefore,

because consumers are in the market for a short period and spend a substantial

amount in that period, it becomes critical for marketers to identify the right

consumer at the right time in order to target and market their products effectively.

(Grewal et al, 2004)

The amount of time and effort that a buyer puts into any particular purchase

depends on the level of expenditure, the frequency of purchase and the perceived

risk involved. Hence, in the case of Consumer Durable Goods, the actual amount

of time spent on information search as well as the effort put in for shopping will

be more as the expenditure will be normally high, the frequency of the purchase

is low and the perceived risk is comparatively high. This, when seen in

perspective with the marketing of consumer non- durable goods, would show just

a divergent course with consumers showing low involvement as the effort put in

for shopping will be less as the expenditure will be by and large low, frequent

purchases and the perceived risk is relatively low.

In many instances, consumers of durable goods must choose from a set of

products, services, brands or courses of actions. In any consumer choice situation,

many options are available. Some options will be evaluated by consumers (the

consideration set), some will be unacceptable (the inept set), and some will be

treated with indifference (the inert set). Consumers must also decide what to

consume and how to and when to dispose of products and services. Thus, to

engage in most forms of consumer behaviour, consumers must make some type

of decision, even if they decide not to choose. Much of the extensive research on

consumer decision making has attempted to specify how information acquired

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from internal and external search is combined to make a decision. A basic

assumption underlying many models is that consumers behave in a cognitive and

rational manner. In other words, they choose the brand or service that has the best

combination of features to best satisfy their needs. (Hoyer& MacInnis, 1984)

The peculiar nature of consumer durable goods because of its high value, high

consumer involvement in shopping and high perceived risk would jointly gives

the marketer a tough time in doing marketing planning of durable goods.

2.4.2 Marketing of consumer durable goods through product differentiation

The most profitable competitive strategy in consumer durable goods industry is a

finely designed branding. Consumer durable goods companies devote substantial

resources in promoting and maintaining brands in order to distinguish their

products from similar goods offered by their competitors. Branding also makes

an inherent assurance to the buyers that the quality would be similar in every

purchase of the same brand. With countless companies mushrooming across the

country and offering high quality durable products by taking advantage of

cheaper technology, easier imports, lower duties, and access to better raw

materials and packaging, the scope of product differentiation on the basis of

functional attributes is too difficult to achieve in this industry. Companies are

then forced to take recourse to innovative branding practices as their unique

means to differentiate in the market, getting attracted by the target population,

ensuring customer loyalty and sales growth.

Marketing of products through branding can be a sure recipe for success for those

products with a consistent image of quality and value for money by ensuring a

recurring preference by the consumers. Consumers’ choice is influenced by many

alternates of which the simplest one is a brand name. In the midst of equally

satisfying products, a consumer who is satisfied with a particular brand will not

possibly take all the trouble to compare and evaluate the other available choices.

Once a consumer likes a product, he will usually remain loyal to it; until there is

an unaffordable increase in its price or a much better quality product comes to his

notice. Branding could be best used as a differentiation strategy when the product

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cannot be easily distinguished in terms of tangible dimensions. That answers why

almost all durable goods manufacturers purposively brand and distinguish

themselves in the competition. But the flip side is that almost all premium brands

are high- priced; and could be relatively ill- affordable for a majority of the

population of a country like India.

Marketers are always searching for new dimensions of differentiation. With even

the newest entrant eyeing the burgeoning rural markets of India alongside the

conventional urban markets, it is worthy to take a peep into the existing strategic

possibilities of differentiation of products through design, which were followed

by the contemporary marketers to get noticed in the durables market. The main

product differentiators are features, performance, conformance, durability,

reliability, repairability, style and design. (Kotler, 1996)

A. Form: Products can be differentiated in their forms- the size, shape or

physical structure of their outward appearance. But with almost all

products imbibing imported technology and designs, it is rather

impossible to differentiate durable products on the basis of their outward

appearance, not to speak of cosmetic changes effected in designs, which

the intelligent consumers would find out in no time, rendering the

marketer exposed as somebody who is out to trick the consumers with

superficial changes effected in his products. Any real change incorporated

in form and accepted by the consumers will be found imitated in no time

by the competitors rendering differentiation through form a difficult thing

to practice.

B. Features: Differentiating products by supplementing additional features to

the existing ones offered by the competitors should be a good strategy;

but the company has to do a cost- benefit analysis of the entire strategy as

the chances of offsetting the intended increase in revenue by the capital

and variable costs to be incurred additionally to effect any such changes

in the product are very high. Despite this, we can see that this strategy

being successfully followed by many companies to differentiate their

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products has paid rich dividends; or at least has given them the advantage

of skimming the market and at times even getting the early- bird

advantage of proper positioning of the new variant as rightfully belonging

to them.

C. Performance Quality: Quality has become the most important criterion to

ensure differentiation. Though usually the products would be marketed at

the optimum performance quality, it would be a befitting strategy to

differentiate one’s products, if the quality of performance could be

bettered at no additional cost or at a nominal cost to the consumers. It is

also to be noted that most of the established brands have profitably

followed the strategy of offering different variants of products in the same

line (line stretching strategy); but having differing levels of performance

quality, offered at differential prices.

D. Conformance Quality: Conformance Quality denotes the degree to which

all the produced units are identical and meet the promised specifications.

With the philosophy of quality gaining ground universal application

including at the production units of durables, Companies follow six sigma

assurance of quality right from the manufacturing unit, ensuring near total

conformance quality. No company can now afford to deviate from this as

any non- conformance in quality would signify instant death bell to the

product, its brand, as well as to the company, even before the company

come to know about this and take remedial steps. Hence, in practice,

differentiation via conformance quality is a foregone conclusion, as the

expectation of the consumers now surpasses all these.

E. Durability: Durability connotes the measure of a product’s estimated

operating life under natural or stressful conditions. It is that attribute of a

product which prompts the consumers to go for a particular product to

enjoy the privilege of extended life of the product at no additional cost or

at a nominal cost. Companies which are confident enough of its product’s

more than usual life could certify its durability through a warranty

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prompting the consumers to go for its products. It is observable that some

companies in India which are really showing this fortitude to attest the

durability of its products through product warrantees are able to

differentiate its products likewise and thereby is successfully positioning

itself as a different brand.

F. Reliability: Reliability is a measure of the chances that a product will not

fail within a certain specified time period. Consumer psychology endorses

the attitude of the buyers to pay a premium for more reliable products.

Unlike from all the above attributes of differentiation, a company cannot

do anything overnight to ensure durability of its products. It is something

which is gathered by the consumers through experience; though like the

positioning strategy, the company can assist the consumers to come to

such a conclusion, if its products are factually durable. Here also, it could

be seen that product warrantees can credibly signal reliability.

G. Repairability: Repairability is the measure of the ease of fixing a product

when it malfunctions or fails. In this era of technologically sophisticated

durable products, though nobody would expect to fix the product

themselves, there exist definitely chances of differentiation if one product

could proclaim to be repaired with exceptional effortlessness. The

strategy of certain companies to offer assured after sale service could be

considered one step in achieving this avowed goal of easy repairability.

H. Style: Aesthetics do offer a chance of differentiation among competing

products. Since looking good and presenting good is anybody’s dream, it

is definitely a strategy that has worked successfully among the marketers

of durable goods. The durable goods industry worldwide has learned

much from the innovations of Japanese marketers in designing stylish

durable goods.

I. Packaging: Packaging has apparently a limited role in the marketing of

consumer durable goods. Since the value of the goods are often high and

the risks involved are considerable, consumers will behave rationally in

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identifying their choice rather than letting themselves carried away by the

superficial styling of the container. It has some significance in the

differentiation of consumer electronic goods such as mobile phones, DVD

player, wrist watches etc. and has still lower impact in the differentiation

of consumer brown goods (Kitchen appliances) and has practically no role

in the differentiation of consumer white goods including refrigerator,

washing machine, air conditioners etc. But irrespective of the nature of

the durable goods, the promotional value of a well designed packaging

should be accepted.

J. Design: As competition intensifies, design offers a potent way to

differentiate and position a company’s products. Design connotes the

totality of features that affect how a product looks and functions in terms

of customer requirements. A well- designed product would be easy to

manufacture and distribute. From the customers’ perspective, a well-

designed product would be pleasant to look at; and also easy to use.

2.4.3 Product Warrantees as tools for product differentiation

Michael Porter assumed that product differentiation is a tool for competitive

advantage in highly competitive markets. The common differentiation parameters

may be the product or its allied service offerings i.e. differentiation through

product augmentation by means of value added services or offerings. In the case

of durable products, Product warrantees seem to be the most prominent

differentiating parameter, which most of the manufacturers use. It is used as a

tool to attract the customer and create trust bond between the buyer and seller in

product. Many marketers use warrantees as augmented service to its core product

offerings. The product quality and its operating defects can be well ascertained

only after product is bought and put to use by the consumer; hence the consumer

needs to be protected for faulty post purchase product performance due to bad

workmanship or poor product quality. Product warrantees seek to reduce post-

purchase dissonance by assuring continued service support by the manufacturer/

seller.

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The present study seeks to validate whether product warrantees which are offered

along with the durable goods will serve as tools for the differentiation in the

promotion of consumer durable goods in India. The warranty or guarantee

offered could take a generic meaning here and could act as product differentiators

or these can relate to any of the designs discussed above as possible

differentiators of consumer durable goods. i.e., a warranty or guarantee can be the

subject of the product differentiation; as well as the tool for product

differentiation. That could mean that the warranty or guarantee offered could

connote a formal assurance given by the marketer with respect to any of the

product differentiators including the form, features, performance quality,

conformance quality, durability, reliability, repairability, style, packaging or any

similar attribute of the durable goods. Since a warranty or guarantee offered

perceivably has all the tangible attributes to differentiate the offer of one marketer

as against another, it is assumed that the underlying assurance of warranty or

guarantee could positively influence the decision of consumers in favour of that

product which comes along with a trustworthy warranty or guarantee.

In the buying decision process of relatively costlier durable goods, when the

consumers are on the lookout for cues to reassure the correctness of their

decision, nothing can be more supporting to them than a legally binding

assurance given by the marketer by means of a warranty or guarantee. The

assurance to the buyers that they will be duly compensated by the marketer in

case the product does not perform up to reasonable expectation should be

credible enough for the consumers than anything else to go for that particular

brand. Considered that way, the warranty or guarantee offered will be serving as

the best differentiator that could support the brand better than anything in the

marketing promotional efforts to offbeat competition.

According to Udell & Anderson, 1968, to satisfy the customer; and to provide the

services guaranteed by the Warranty, the manufacturer may adopt the following

guidelines:

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i) Ensure the integrity and credibility of the Warranty

ii) Institute a meaningful education program regarding the use of the product.

iii) Strengthen the Company program for quality control in manufacturing.

iv) Provide high quality maintenance and repair service.

If these guidelines are followed properly by the manufacturers, repeat sales can

be stimulated.

Product warrantees have become an important aspect of after-sales service in the

marketing of durable goods. (Kotler, 1996). Warranty reduces buyers’ perceived

risk in post purchase scenario. It suggests that the product is backed up by after

sales service and it is dependable. As the consumers are often heterogeneous in

their valuation of warranty coverage, the sellers are observed to sell different levels

of warranty coverage to different consumers in different product-market situation

and thereby increase profits. The other role for warrantees is to impress upon the

customers the unobservable quality of the product. Warrantees are effective in two

situations, the first where the company or product is not well known and secondly

the product quality is superior to the competitor. Many times warrantees are used

as differentiators by dealers at the point of sales. (Kotler, 1996)

Nevertheless, on account of product and service life cycles of the products

becoming shorter due to rapid technological innovations and consequent product

modifications, the warrantees in the present form may transform to shorter

periods; albeit metamorphosing as state-of-the-art warrantees in the near future.

In the case of Xerox, the inclusive guarantee programs are from Xerox Corp,

primarily because the guarantee covers all products; and the choice of

replacement or repair is the customer's decision- not that of the manufacturers.

Xerox's guarantees are straightforward about the entire program. For example,

Xerox's states simply: If you are not satisfied with your Xerox equipment, Xerox

will replace it without charge to you with an identical model or a machine with

comparable features and compatibilities. The term of the Xerox Total satisfaction

Guarantee is three years from equipment delivery. This guarantee applies to

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Xerox equipment acquired from Xerox and continuously maintained by Xerox or

its authorized representatives. Interestingly, although the initial intent of the

guarantee program was meant to help sell equipment, a guarantee to replace

equipment has actually became cheaper for companies like Xerox, than to

continue to send out a technician to repair equipment with chronic problems.

2.5. Role of product warrantees on attributes of product quality

Warrantees have become one among the most important aspect of after-sales

service in the marketing of durable goods. The warranty policy will create the

trust in the customers about the basic service provided by the seller and thus they

are not left standoffish in case of any product problems arising during its initial

usage period. As the consumers are often heterogeneous in their requirement of

warranty coverage, the sellers are observed to sell different levels of warranty

coverage to different consumers in different product-market situation. The other

role for warrantees is to impress upon the customers the imperceptible quality of

the product. A long warranty can be used to signal better quality because high

quality sellers have a cost advantage over low quality sellers in offering warranty

protection. A high quality seller needs warranty policy to play both the above two

roles simultaneously. If sellers have limited ability to use branding, reputation, or

advertising to signal quality, warranty policy may be an effective option to signal

quality information to buyers. In addition, if a high quality seller wishes to signal

with warranty policy, it may also face a heterogeneous market in which profits

can be increased by selling different amounts of coverage to different customers.

There are two components of quality, which customer is looking for in the

product during its post purchase usage. One is resolvable attribute i.e. any

product defect which can be resolved during the product warranty period. The

other one is unresolvable quality, which is beyond warranty period. If sellers

have limited ability to use branding, reputation, or advertising to signal quality,

warranty policy may be an effective option to signal quality information to

buyers. In addition, if a high quality seller wishes to signal quality through

warranty policy, it may also face a heterogeneous market in which profits can be

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increased by selling different amounts of coverage to different customers. It is

well known that during a customer’s ownership experience, attribute- level

satisfaction influences overall satisfaction with product quality. The drivers of

satisfaction with product quality shift over time in different ways based on the

attributes' resolvability. The resolvable attributes are those attributes that can be

repaired and that are covered under the product's warranty (e.g. TV tube) and

irresolvable attributes are those attributes that cannot be fixed or changed,

regardless of warranty coverage, without the purchase of a new product (e.g. Size

of TV screen). As the usual consumer grievances will be with respect to

resolvable attributes, product warrantees can effectively serve as redress

mechanisms; and further can positively affect customer satisfaction.

All attributes encounter a normal wear and tear over time, which can lead to a

general decline in satisfaction. However, when owners are dissatisfied with

something that can be fixed, they are likely to blame the manufacturer for not

doing the better job, but when owners are dissatisfied with irresolvable attributes,

they are likely to attribute their dissatisfaction to the inherent nature of the

product; and then to learn to cope with the source of the frustration.

According to Philip Kotler (Kotler, 1996), Guarantee may serve one of the two

purposes for the manufacturer:

i) To protect against the abuses of the service policy and to limit his

liability; or

ii) To provide an additional promotional media in his program for selling

against the competitors.

It could be seen that those manufacturers who use Guarantees to prevent abuses

of service policy and thereby to limit his liability is in a way following a

defensive strategic use of Guarantee; whereas those manufacturers who use

Guarantees to differentiate their market offer from the competition is following

an offensive promotional strategy.

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According to Udell and Anderson, 1968, promotional Guarantees are used in a

number of different situations. In the market introduction of a new product, they

can help in overcoming buyer resistance, gaining initial distribution, adding new

dealers and opening new market areas. In introducing new products and

remerchandising established products, promotional Guarantees are most effective

when:

a) The product has a high retail price- the higher the price, the more

assurance buyers want that the product will perform as represented.

b) The product is purchased infrequently.

c) Buyers visualize the product as complex. Complex products are costly to

repair and complexity is likely to increase buyer uncertainty.

d) The firm’s market share is small. A promotional Guarantee may

overcome consumers’ uncertainty about products which are little known.

A seller who wishes to sell a product with an optional extended warranty to a

heterogeneous market, face two types of buyers i.e. less and more risk averse.

Buyers who are more risk averse place higher value on warranty protection. In

this case, the seller can choose a base price and warranty cost for the product; and

a price for optional extended coverage because of the fact that the seller knows

the quality of the product and the buyer does not. Thus, using warranty coverage,

the sellers can set the warranty options to maximize profit, when the warranty

coverage offered by competitors is inferior; and the only signal of quality to

buyers is the price.

2.5.1 Evolution of Warranty & Guarantee

The concept of warranty has been around for almost as long as there has been

trade and there have been many representations of warranty throughout history. It

has existed in some form or another from the early civilizations (Babylonian,

Assyrian, and Egyptian Eras, Ancient Hindu and early Islamic periods), through

the European Period (Roman Era, Germanic, Jewish, and early English periods,

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and the early Russian Era), the Middle Ages, the Industrial Revolution and

beyond. (Murthy and Djamaludin, 2002).

Until the sixteenth century, the general purpose of warranty was to protect the

buyer from fraud and faulty workmanship. When trade policy reversed around

the dawn of the industrial revolution to favour the manufacturer, it was not a

pressing issue since products were still produced locally by people known

personally to buyers. Products were still relatively simple and easily evaluated,

and any dissatisfaction was addressed directly to the manufacturer, with word of

mouth travelling fast in local and tight knit communities. As communities grew,

so did the acceptance of caveat emptor or ‘‘let the buyer beware’’. Late in the

nineteenth century, standardized product warrantees became more common,

although many were extremely limited in coverage. (Murthy and Djamaludin,

2002).

The most revered; yet hated rule of the market place has been the doctrine of

‘caveat emptor’, which says that it is the buyer who should be beware and

cautious while shopping in market place. The rule has protected the seller or the

business community from the challenging consumers just more than anything

else. The buyers or the consumers are deemed to have verified the quality of the

product and utility of the product for their use and to their satisfaction, before the

purchase is completed. Any defect noticed, subsequent to the sale; or discovered

upon use, was to be suffered by the buyer himself, and no legal remedy would be

available against the seller or the manufacturer. As per the doctrine of caveat

emptor, the seller is under no duty to reveal unflattering truths about the goods

sought to be sold in the market. The seller is not bound to supply goods which

should be fit for any particular purpose or which should possess any particular

quality. When a buyer buys the goods, he must examine them thoroughly. It was

for the buyer to make himself acquainted with qualities and defects of the goods

which he contemplated purchasing. If the goods turn out to be defective; or do

not suit his purpose, or if he depends upon his own skill or judgment and makes a

bad selection, he cannot blame anybody excepting himself.

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The scope of the doctrine of ‘caveat emptor’ was explained by Lord Justice Fitz

Gibbon, in a consumer appeal case which arose more than a century before in

1902. “Caveat emptor does not mean in Law that the buyer must take chance; it

means he must take care. It applies to the purchase of specific things, upon which

the buyer can, and usually does, exercise his own judgment; it applies also

whenever the buyer voluntarily chooses what he buys; it applies also where by

usage or otherwise it is a term of the contract, which the buyer shall not rely on

the skill or judgment of the seller. (Wallis Vs Russel, 1902)

The rule owes its origin to the times when nearly all sales took place in the open

market. The buyer and the seller came face to face, the seller exhibited his wares,

the buyer examined them and bought them if he liked. Invariably this doctrine

and its strict application had resulted in indescribable miseries for the consumers,

who were rendered hapless even before the most liberal judicial interpretation of

the early times. Since the evolution of the formal market and thereafter for

centuries, the doctrine of ‘caveat emptor’ has been the ultimate rule governing

any issues between the consumer and the manufacturer.

When trade grew and assumed global dimensions, it became difficult for buyers

to examine the goods beforehand, most transactions being concluded by

correspondence. Further, on account of the complex structure of modern goods, it

is only the sellers who can assure the contents and quality of the goods. The strict

application of the doctrine has resulted in untold miseries to the consumers,

which has led the Courts to take initiative in accepting exceptions to mitigate the

harshness of the doctrine.

In the famous case of Jones Vs Bright (1829), Chief Justice Best explained the

reasons why it became necessary for the judges to restrict the rule of caveat

emptor. “It is the duty of the Court in administering the law to lay down rules

calculated to prevent fraud, to protect persons who are necessarily ignorant of the

qualities of a commodity they purchase, and to make it the interest of

manufacturers and those who sell, to furnish the best article that can be supplied.

I wish to put the case on a broad principle. If a man sells an article, he thereby

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warrants that it is merchantable- that is, fit for some purpose. If he sells it for a

particular purpose, he thereby warrants it fit for that purpose.”

Numerous complaints from the general public led to a governmental campaign to

protect consumers in many areas, including the constricted application of the

doctrine of caveat emptor. Furthermore, disregarding the fundamental rule of

privity of contract, courts had started making the producers being held

responsible, even when the sales contract is between a retailer and a consumer.

Those judicially prescribed exceptions to the doctrine of caveat emptor were

given legislative sanction; more exceptions were added to protect the consumers

from the organized traders, making the caution of caveat emptor diametrically

opposite. Now the caution is: caveat vendor- Let the seller beware. Currently,

the universal legal tendency is to make the manufacturer absolutely liable for the

faults of his goods, whether known to him or otherwise, paving way for the

establishment of seller accountability and consumer supremacy for all product-

related issues.

2.6 Legal Theories of Products Liability

When a dissatisfied buyer or consumer has allegedly been financially or

physically injured as a result of a defective product, he has several possible legal

concepts upon which to base his claim for redress. He can proceed against the

seller (i) for being negligent, (ii) for committing breach of warranty; or (iii)

invoke liability for intentional fraud or deceit.

Negligence

The first is the theory of negligence-the failure to exercise reasonable care. When

a consumer bases his cause of action on negligence, he must establish that the

manufacturer was under the obligation to exercise care; that the obligation was

not fulfilled, thereby producing harmful or defective merchandise; and that an

injury was caused by the defective goods. In appropriate cases where proof is

available, it was possible to succeed in a negligence suit against a manufacturer.

However, wholesalers, retailers and salesmen who merely handle the goods are

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seldom in fact negligent; and usually a suit against a non- manufacturer based

upon lack of care would be rendered futile. Nevertheless, the law of practically

all jurisdictions is now well settled to the effect that most manufacturers,

suppliers, and sellers of merchandise for a consideration owe the duty to all

probable users of exercising reasonable care in the manufacture and sale of a

product for market. This rule was not however without exceptions. It was decided

in a famous European case (Winterbottom Vs Wright, 152 Eng. Rep. 402, 1842)

that a manufacturer had no legal responsibility for harm caused to a consumer,

even if the manufacturer had failed to exercise care in manufacture, unless the

person injured had actually purchased the item directly from the manufacturer. In

short, a manufacturer or seller owed no legal duty to anyone except those with

whom the defendant had a contractual relationship. Lack of privity of contract was

then a valid defense, but not anymore.

The Privity Rule

Since warranty is a promise, the liability for breach of warranty has frequently been

defined or thought of as contractual in nature; and not a tort. It has often been said

that there can be no warranty of any kind unless a contractual relationship exists

between the parties. It follows, therefore, that lack of privity of contract has

generally been a valid defense to any cause of action based upon alleged breach of

warranty. Now a days, upon the sale of a durable good, the trader will require the

buyer to fill up a form and mail it to the manufacturer after getting it stamped by

the dealer, to complete the process of a the warranty contract. This activity, by

default, will make a privity between the manufacturer and the consumer.

Warrantees of Quality

Warranty is strict or absolute liability. Failure on the part of the manufacturer or

seller to exercise care is not relevant; and to succeed in a claim the consumer need

not establish that the defendant was at fault in causing the injury. Warranty liability

is liability without fault. To succeed, the consumer needs only to establish the

existence of a warranty, the breach thereof, and the resulting injury.

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Liability for intentional fraud or deceit

It has always been recognized that intentional fraud or deceit will create liability,

even in the absence of a contractual relationship between the parties.

Misrepresentation, whether deliberate or otherwise, will now invite absolute

liability for the manufacturer. Where it is proved by the consumer that the he has

suffered a product- related physical injury or pecuniary loss on account of

misrepresentation by the manufacturer or by his agents, the action or omission will

be punishable.

A warranty or a guarantee is a promise of enormous psychological value, even if it

often amounts to very little in practice. The word guarantee has a magical

resonance and thus appears often in the sales literature of manufacturers. In fact,

scared by the very idea of the subsequent responsibility and the host of matters for

which it will be held responsible, the manufacturers have done its utmost to take

back (in the small illegible lettering of the sale's contract), most of the things

offered to the customer (in large lettering in publicity), thereby attempting to allay

its own fears.

Manufacturers have also been very successful in this shrinking of the guarantee

with a series of gimmicks such as replacing faulty parts but charging for the labor

costs (the main factor), or locating the place where the guarantee contract is

actualized far from the place of present use, thus increasing the general cost of

access to it and achieving an effect of systematic dissuasion. Behind this word

guarantee, therefore, are accumulated several possible steps of restriction, the most

important of which is certainly the unavoidable general cost incurred by the

customer in order to benefit from the guarantee itself.

Further, as a later development, sellers started offering limited warrantees

restricting their liability. This has taken away from the consumers whatever little

assurance these warrantees had sought to offer the consumers. With the extensive

invasion of the use of Standard Form Contracts in all types of business contracts,

legal language also crept into the promise of warranty. Warrantees were often

limited and written in a language the average consumer does not understand.

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Consumers were often required to accept a product on terms, which are often

unconscionable. Consumers were offered the limited choice of accepting a product

warranty subject to terms, which are undesirable, or learning to live without the

product. Too often, the consumers learn that they are not entitled to services,

repairs and replacements that seem to be offered by the warranty. To a certain

extent, the traders were successful in bringing back the doctrine of ‘caveat emptor’

again, albeit clandestinely and indirectly.

In order to mitigate the harshness of the circumstances created, Western countries

initiated legislating drawing exceptions to the general rule of ‘caveat emptor’.

Consumer protection through governmental intervention ensured the rights of

consumers as well as fair trade, competition, as well as the free flow of truthful

information in the marketplace. The laws are designed to prevent businesses that

engage in fraud or specified unfair practices from gaining an advantage over

competitors and may provide additional protection for the weak and those unable to

take care of themselves. Consumer protection laws serve as a form of government

regulation which aims to protect the rights of consumers. The harbinger of

legislation in consumer protection was the Magnuson- Moss Warranty Act, passed

in 1975 by the US Congress.

Taking a cue from the western precedents, India has also now certain laws to

protect its consumers. Indian contract Act, Sale of Goods Act, Consumer

Protection Act, Monopolies and Restricted Trade Practices Act and Civil Procedure

Code constitute the most notable laws in this regard. Consumer interests are also

understood as could be protected by promoting competition in the markets which

directly and indirectly serve consumers, consistent with economic efficiency, and

the Competition Act was passed by the Indian Parliament with this avowed

objective.

2.7 The significance of Magnuson- Moss Warranty Act- 1975

The Magnuson- Moss Warranty Act of the United States is often universally

referred to as the magna- carta of all consumer protection laws. Even in India, the

provisions of the Consumer Protection Act were derived from the much hailed

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Magnuson- Moss Warranty Act. Since the very spirit of the Indian consumer law,

its constitution, applicability as well as enforcement approach comprehensively

follow the American Act, a proper understanding of the Magnuson– Moss

Warranty Act is considered most necessary before proceeding any further.

Enacted in 1975, the Magnuson- Moss Warranty Act is a United States federal

statute that governs warrantees on consumer products. The Act was sponsored by

Senator Warren G. Magnuson of Washington and U.S. Rep John E. Moss of

California, as well as Senator Frank Moss of Wyoming, who co-sponsored it with

Magnuson.

The Magnuson-Moss Act was enacted by U S Congress in response to the

widespread misuse by merchants of express warrantees and disclaimers. The

legislative history indicates that the purpose of the Act was to make warrantees on

consumer products more readily understood and easily enforceable; and to provide

the enforcement machinery, the Federal Trade Commission, with means to better

protect consumers. The statute is remedial in nature and is intended to protect

consumers from deceptive warranty practices.

To begin with, most remarkably, consumer products in US are not required to have

warrantees, but if one is given, the Act requires that it must comply with the

Magnuson- Moss Act. The Magnuson- Moss Warranty Act obliges manufacturers

and sellers of consumer products to provide consumers with detailed information

about warranty coverage. In addition, it affects both the rights of consumers and the

obligations of warrantors under written warrantees. Its purpose was to improve the

information available to consumers, prevent deception, and improve competition in

the marketing of consumer products.

The Magnuson- Moss Warranty Act applies only to consumer products, which are

defined as any tangible personal property which is distributed in commerce and

which is normally used for personal, family, or household purposes. Under the Act,

if a warrantor sells a consumer product costing more than $15 under written

warranty, the writing must state the warranty in easily understandable language as

determined by standards set forth by the Federal Trade Commission. There is,

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however, neither any requirement that a warranty be given nor that any product be

warranted for any length of time. Thus the Act only requires that when there is a

written warranty, the warrantor clearly disclose the nature of his warranty

obligation prior to the sale of the product. The consumer may then compare

warranty protection of similar products and do the best comparative shopping. To

further protect the consumer from deception, the Act requires that any written

warranty on a consumer product that costs more than $15 must be clearly labeled

as either a "full" or a "limited" warranty. Only warrantees that meet the standards

of the Act may be labeled as "full".

Under a full warranty, in the case of a defect, malfunction, or failure to conform to

the written warranty, the warrantor:

� should repair the consumer product within a reasonable time and without

any charge;

� should not impose any limitation on the duration of any implied warranty

on the product;

� should not exclude or limit consequential damages for a breach of any

written or implied warranty on the product, unless the exclusion or

limitation conspicuously appears on the face of the warranty; and

� If the product, or a component part, contains a defect or malfunction, must

permit the consumer to elect either a refund or replacement without charge,

after a reasonable number of repair attempts.

In addition, the warrantor may not impose any duty upon any consumer, other than

intimating the seller, as a condition of securing the repair of any consumer product

that malfunctions, is defective, or does not conform to the written warranty.

However, the warrantor may require consumers to return a defective item to its

place of purchase for repair. Thus, a full warranty means that the warrantor who

promises to fix the item must do so in cases of defect or where the item does not

conform to the warranty. This action must be done within a reasonable time and

without any charge.

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A limited warranty can contain reasonable restrictions regarding the responsibilities

of the manufacturer or seller for the repair or replacement of the item.

One of the most important provisions of the Act prohibits a warrantor from

disclaiming or modifying any statutorily implied warranty whenever any written

warranty is given or service contract entered into. Implied warrantees may, however,

be limited in duration if the limitation is reasonable, conscionable, and set forth in

clear and unmistakable language prominently displayed on the face of the warranty.

A consumer damaged by breach of warranty, or noncompliance with the Act, may

sue in either state or federal district court. Access to federal court (Supreme Court),

however, is severely limited by the Act's provision that no claim may be brought in

federal court if: (a) The amount in controversy of any individual claim is less than

$25,000; (b) the amount in controversy is less than the sum or value of $50,000

computed on the basis of all claims in the suit; or (c) a class action is brought, and the

number of named plaintiffs is less than 100. In light of these requirements it is likely

that most suits will be brought in state court. If the consumer so demands, he can

claim costs and legal fees, is entitled to recover all other litigation expenses, based on

actual time expended, as determined by the court.

To better understand the significance of the Act, it is essential to be aware of the

intentions of the U S Congress in passing it:

First, the U S Congress wanted to ensure that consumers could get complete

information about warranty terms and conditions. By providing consumers with a

way of learning what warranty coverage is offered on a product before they buy,

the Act gives consumers a way to know what to expect if something goes wrong,

and thus helps to increase customer satisfaction.

Second, the U S Congress wanted to ensure that consumers could compare

warranty coverage before buying. By comparing, consumers can choose a product

with the best combination of price, features, and warranty coverage to meet their

individual needs.

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Third, the U S Congress intended to promote competition on the basis of warranty

coverage. By assuring that consumers can get warranty information, the Act

encourages sales promotion on the basis of warranty coverage and competition

among companies to meet consumer preferences through various levels of

warranty coverage.

Finally, the U S Congress wanted to strengthen existing incentives for companies

to perform their warranty obligations in a timely and thorough manner and to

resolve any disputes with a minimum of delay and expense to consumers. Thus, the

Act makes it easier for consumers to pursue a remedy for breach of warranty in the

courts, but it also creates a framework for companies to set up procedures for

resolving disputes inexpensively and informally, without litigation.

2.7.1 Definitions used under Magnuson- Moss Act

• A "consumer" is a buyer of consumer goods for personal use. A buyer of

consumer products for resale is not a consumer.

• A "supplier" is any person engaged in the business of making a consumer

product directly or indirectly available to consumers.

• A "warrantor" is any supplier or other person who gives or offers a written

warranty or who has some obligation under an implied warranty.

• A "consumer product" is generally any tangible personal property for sale

and that is normally used for personal, family, or household purposes.

• A "written warranty" (also called an express warranty) is any written promise

made in connection with the sale of a consumer product by a supplier to a

consumer that relates to the material and/or workmanship and that affirms

that the product is defect-free or will meet a certain standard of performance

over a specified time.

• An "implied warranty" is defined by law. The Magnuson- Moss Act simply

provides limitations on disclaimers and provides a remedy for their violation.

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Express warrantees, unlike implied warrantees, are not "read into" a sales

contract by law. Instead, the manufacturer explicitly offers these warrantees

to the customers in the course of a sales transaction. They are promises and

statements that are voluntarily made about the product or about the

manufacturers’ commitment to remedy the defects and malfunctions that

some customers may experience. Express warrantees can take a variety of

forms, ranging from advertising claims to formal certificates. An express

warranty can be made either orally or in writing. While oral warrantees are

important, only written warrantees on consumer products are covered by the

Magnuson- Moss Warranty Act.

• A "full warranty" is one that meets the federal minimum standards for a

warranty. Such warrantees must be "conspicuously designated" as full

warrantees. The manufacturer warranty can be termed as a "full" warranty, if:

� There is no limit on the duration of implied warrantees.

� The warranty service is provided to anyone who owns the product

during the warranty period; that is, there is no restriction of coverage to

first purchasers.

� Warranty services are provided free of charge, including such costs as

returning the product or removing and reinstalling the product when

necessary.

� Warranty services are provided, at the consumer's choice, either a

replacement or a full refund if, after a reasonable number of tries, it is

found unable to repair the product.

� Warranty program do not require consumers to perform any duty as a

precondition for receiving service, except intimating that some service

is needed.

• A "limited warranty" is one that does not meet the federal minimums. Such

warrantees must be "conspicuously designated" as limited warrantees.

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• A "multiple warranty" is part full and part limited.

A "service contract" is different from a warranty because service contracts do not

affirm the quality or workmanship of a consumer product. A service contract is a

written instrument in which a supplier agrees to perform, over a fixed period or for

a specified duration, services relating to the maintenance or repair, or both, of a

consumer product.

The Magnuson- Moss Warranty Act provides that any warrantor warranting a

consumer product to a consumer by means of a written warranty must disclose,

fully and conspicuously, in simple and readily understood language, the terms and

conditions of the warranty to the extent required by rules of the Federal Trade

Commission.

Likewise, service contracts must fully, clearly, and conspicuously disclose their

terms and conditions in simple and readily understood language.

Warrantors cannot require that only branded parts be used with the product in order

to retain the warranty. This is commonly referred to as the "tie-in sales" provisions,

and is frequently mentioned in the context of third-party computer parts, such as

memory and hard drives.

2.7.2 Limitations of the Magnuson- Moss Act

The Magnuson- Moss Act does not invalidate or restrict any right or remedy of any

consumer under any other US law. The Act does not invalidate or restrict any right

or remedy of any consumer under any state law. The Act is not the dominant

regulation of consumer product warrantees, and while it prescribes certain

disclosures and restricts certain limitations on warrantees, it leaves other warranty

law untouched. Although the Act covers warrantees on repair or replacement parts

in consumer products, warrantees on services for repairs are not covered.

2.7.3 Remedies under the Magnuson- Moss Warranty Act

The Act is meant to provide consumers with access to reasonable and effective

remedies where there is a breach of warranty on a consumer product. The Act

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provides for informal dispute- settlement procedures and for actions brought by the

government and by private parties.

It was mandated to promulgate rules to encourage the use of alternative dispute

resolution, and full warrantees may require mediation and/or arbitration as a first

step toward settling disputes. In addition, only the central government has the

authority to take injunctive action against a supplier or warrantor who fails to meet

the requirements of the Act.

Finally, consumers may seek redress in the courts for alleged violations of the

Magnuson- Moss Act. A consumer who has been injured by the noncompliance of

a supplier may bring an action in federal court if the amount in controversy is over

$25,000 or a class action if the number of class plaintiffs is greater than 100. If the

jurisdictional amount, or the number of plaintiffs, does not meet these thresholds,

an action under the Act may be brought only in state court. Moreover, one of the

key aids to the effectiveness of the Act is that a prevailing plaintiff may recover

reasonable costs of suit, including attorney fees.

2.7.4 Salient features of the Magnuson- Moss Act

First, the Act does not require any business to provide a written warranty. The Act

allows businesses to determine whether to warrant their products in writing.

However, once a business decides to offer a written warranty on a consumer

product, it must comply with the Act.

The Act does not apply to oral warrantees. Only written warrantees are covered.

The Act does not apply to warrantees on services. Only warrantees on goods are

covered. However, if your warranty covers both the parts provided for a repair and

the workmanship in making that repair, the Act does apply to you.

The Act does not apply to warrantees on products sold for resale or for commercial

purposes. The Act covers only warrantees on consumer products. This means that

only warrantees on tangible property normally used for personal, family, or

household purposes are covered.

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2.7.5 How the Magnuson- Moss Act affects warranty disputes

Two features of the Magnuson- Moss Warranty Act are important to warrantors.

First, the Act makes it easier for consumers to take an unresolved warranty

problem to court. Second, it encourages companies to use a less formal, and

therefore less costly, alternative to legal proceedings. Such alternatives, known as

dispute resolution mechanisms, often can be used to settle warranty complaints

before they reach litigation.

Although the Act makes consumer lawsuits for breach of warranty easier to bring,

its goal is not to promote more warranty litigation. On the contrary, the Act

encourages companies to use informal dispute resolution mechanisms to settle

warranty disputes with their customers.

The Magnuson- Moss Warranty Act spearheaded the effort to use an information

remedy to improve the marketplace, which was thitherto a virtual black box for the

consumers, who were having practically no information on the quality of products

it offered. The warranty provisions of that Act addressed this basic problem of little

or no information about the product reliability potential of any consumer product

that he buys. He cannot look at the length of the warranty period as a possible

indicator of product reliability, because inconsistency in warranty terms and

performance permits producers of less reliable products to compete on ostensibly

the same terms of duration as producers of more reliable products. This problem

was sought to be prevented by the Act by clearly imposing regulations on warranty

performance, availability, and content. The Act has further aimed to solve the

above problem by clarifying the rules of the warranty application, so that the

duration of a product's warranty would be a useful comparative measure of product

reliability. Moreover, it was hoped that since consumer choice in the marketplace is

guided by the desire for product reliability measured by the duration of the

warranty, there would be an incentive for suppliers of consumer products to offer

warrantees of relatively long duration.

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2.8.1 Warranty & Guarantee- Indian legal position

In Indian context there is no direct law toward product warrantees like the

Magnuson- Moss Warranty Act. Nevertheless, depending on the facts and

circumstances of the consumer disputes, different statutes will apply for disputes

redress. For instance, as every transaction for the sale of durable goods involves a

contract, the applicable basic law will be the Indian Contract Act. When there is a

general breach of product warrantees, it will be treated as an instance of

misrepresentation; and will be dealt with under the various provisions of the Indian

Contract Act. Since the transaction for the sale of durable goods relates to sale of

goods, the appropriate provisions under the Sale of Goods Act will also apply. If

the buyer buys the goods for a non- commercial purpose, the transaction attracts

the Consumer Protection Act 1986. Where the accused trader proceeded against

under the Consumer Protection Act, disputes the allegation leveled against him, the

aggrieved consumer may be directed to seek a detailed and more comprehensive

civil remedy invoking the relevant provisions under the Civil Procedure Code.

When the alleged consumer dispute comes under the purview of unfair trade

practice, the provisions of another law The Monopolies and Restrictive Trade

Practices Act- 1969 will come into force seeking to protect the Indian consumers.

Which particular statute shall apply in a particular case is basically dependent on

the construction or framing of the agreement for the sale of goods outlining the

product warrantees; and the nature of the alleged offence.

2.8.2 Warranty & Guarantee under the Consumer Protection Act- 1986

The Consumer Protection Act 1986, protects the consumers form defective

products or services. The sale of defective products or not attending to customer's

complaints on defective products by the manufacturers constitutes 'Unfair Trade

Practices' and the manufacturer may have to compensate for the loss to the

consumer arising out of such products. Hence, in order to minimize risk towards

heavy compensation to the consumer, the manufacturers offer the limited warranty

for short period of one year.

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The need for consumer protection and the demand for a special law seeking to

protect the consumers were seriously felt since 25 years or so. Ever since the

introduction of the consumer protection laws in western legislatures, the Indian

consumer rights activists have been excited about the prospects of improving the

plight of consumers. India was criticized as perhaps the only major economy in the

world where a seller can unscrupulously plan any scam against a consumer without

the fear of prosecution by the government, the judiciary or any statutory or

regulatory agency.

The Indian Law which is analogous to the Magnuson-Moss Act is the Consumer

Protection Act- 1986, though in purpose, relevance, content, application and

enforcement, the Indian Law is far distant from the American Act. The Monopolies

and Restrictive Trade Practices Act- 1969 also assumes to protect the consumer in

a related manner.

Consumer Protection Act of 1986 is a benevolent piece of social legislation. The

Act was enacted so that it could be developed into a very useful social legislation

that safeguards the rights and protection of the consumers. The Act aims to provide

speedy, inexpensive and summary redressal of consumer disputes by superseding

traditional common law rule of 'caveat emptor' (i.e. Let the buyer be aware) and

adopting 'caveat venditor' (i.e. Let the vendor be aware). The Act provides three-

tier structure consisting of the quasi-judicial bodies set up in each District, at the

State level and at the national level, called the District Forums, the State Consumer

Disputes Redressal Commissions and the National Consumer Disputes Redressal

Commission respectively. These authorities are empowered to interpret consumer

usage terms in favor of consumers.

The Consumer Protection Act of 1986 is compensative in nature. The remedies are

planned to give simple, prompt and economical reprisal to the consumers'

complaints, award relief and recompense wherever suitable to the user. Consumer

Protection Act imposes strict liability on a manufacturer, in case of supply of

defective goods by him, and a service provider, in case of deficiency in rendering

of its services. The term “defect” and “deficiency”, as held in a catena of cases, are

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to be couched in the widest horizon of there being any kind of fault, imperfection

or shortcoming. Furthermore, the standard, which is required to be maintained, in

services or goods is not to be restricted to the statutory mandate but shall extend to

that claimed by the trader, expressly or impliedly, in any manner whatsoever. The

Act is ameliorated in 1993 both to expand its exposure and scope and to increase

the powers of the reprisal system.

The Consumer Protection Act 1986 has the following coverage:

• The Act conceives of organization of Consumer Protection Councils at the

Central and State levels, whose main objects will be to endorse and defend

the rights of the consumers.

• The Act applies to all goods and services unless particularly exempted by

the Central Government.

• The provisions of the Act are compensatory in nature.

• It covers all the sectors whether private, public or cooperative.

• The provisions of this Act are in addition to and not in derogation of the

provisions of any other law for the time being in force.

• The provisions of this Act cover ‘goods’ as well as ‘services’. The goods

are those which are manufactured or produced and sold to consumers

through wholesalers and retailers.

Dispute resolution under the Consumer Protection Act is structured under the

following three tier quasi- judicial machinery at the National, State and District

levels;

• National Consumer Disputes Redressal Commission - known as "National

Commission" deals with complaints involving costs and compensation higher

than Rs. 1 Crore

• State Consumer Disputes Redressal Commissions - known as "State

Commission, deals with complaints involving costs and compensation higher

than Rs. 20 Lakhs and less than Rs. 1 Crore.

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• District Consumer Disputes Redressal Forums - known as "District Forum,

deals with complaints involving costs and compensation less than Rs. 20

Lakhs.

2.8.3 Definition of ‘defect’ and ‘consumer’ under the Consumer Protection Act- 1986

Under the Consumer Protection Act (CPA), Consumer Forums at the District, State

and National level have been specifically constituted to adjudicate claims of

consumers for any “defect” in goods. A “defect” has been defined in Section 2(1)

(f) of the Act as “any fault, imperfection or shortcoming in the quality, quantity,

potency, purity or standard which is required to maintained by or under any law for

the time being in force or under any contract, express or implied, or as is claimed

by the trader (which includes the manufacturer) in any manner whatsoever in

relation to any goods.”

It is important to mention herein that by virtue of Section 2 (1)(d) persons/entities

who had purchased goods for ‘commercial purpose’ (other than those persons who

have purchased goods for using them to earn their livelihood by means of self

employment) are excluded from the scope of CPA; they cannot institute

proceedings under the CPA even if there is any ‘defect’ in the goods purchased by

them for using the goods for commercial purposes.

2.8.4 Unfair trade practice: It means a trade practice which a trader, for the

purpose of promoting the sale, use or supply of any goods or for the provision of

any service, adopts any unfair method or unfair or deceptive practice. It includes

any of the following practices, namely:

1. The practice of making any statement, whether orally or in writing; or by

visible representation, which:

i. Falsely represents that the goods are of a particular standard, quality,

quantity, grade, composition, style or model;

ii. Falsely represents that the services are of a particular standard, quality

or grade;

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iii. Represents that the goods or services have sponsorship, approval,

performance, characteristics, accessories, uses or benefits which such

goods or services do not have.

iv. Gives to the public any warranty or guarantee of the performance,

efficacy or length of life of a product or of any goods that is not based

on an adequate or proper test thereof;

v. Makes to the public a representation in a form that purports to be- (a) a

warranty or guarantee of a product or of any goods or services; or (b) a

promise to replace, maintain or repair an article or any part thereof or to

repeat or continue a service until it has achieved a specified result,- if

such purported warranty or guarantee or promise is materially

misleading or if there is no reasonable prospect that such warranty,

guarantee or promise will be carried out;

vi. Gives false or misleading facts disparaging the goods, services or trade

of another person;

vii. Permits the publication of any advertisement for the sale or supply at a

bargain price of goods or services that are not intended to be offered for

sale or supply at a bargain price. (Including the offer of gifts, prizes or

other items with the intention of not providing them as offered for free,

when it is fully or partly covered by the price; or the conduct of any

contest, lottery, game of chance or skill, for the purpose of promoting

the sale of any product)

2.8.5 Purview of a ‘complaint’

According to the CPA, ‘Complaint’ means any of the following allegations made

in writing by a complainant-

i. Any unfair trade practice or a restrictive trade practice has been adopted by

a trader,

ii. The goods hired or bought suffer from one or more defects

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iii. The goods hired or availed of are deficient in any respect

iv. A trader has charged price in excess of price fixed by law or displayed on

the goods or any package containing goods

v. Goods which will be hazardous to life and safety when used, are being

offered for sale to the public in contravention of the provisions of any law

requiring traders to display information in regard to the contents, manner

and effect or use of such goods.

2.8.6 Grant of reliefs under the under the Consumer Protection Act- 1986

On arriving at a finding of defect in the goods according to Section 14 CPA, the

jurisdictional Consumer Forum may direct one or more of the following:

(i) To remove the defect.

(ii) To replace the goods with new goods of similar description, which shall be

free from any defect.

(iii) To return to the complainant the price.

(iv) To pay such amount as may be awarded as compensation to the consumer

for the loss or injury suffered by the consumer due to the negligence of the

opposite party;

(v) To discontinue the unfair trade practice or the restrictive trade practice or

not to repeat them;

(vi) To cease and desist manufacture of hazardous goods;

(vii) To pay such sums as orders if injury/loss is suffered by a large number of

consumers not identifiable conveniently;

(viii) To issue corrective advertisement for neutralizing effect of misleading

advertisement;

(ix) Not to offer the hazardous goods for sale;

(x) To withdraw the hazardous goods from being offered for sale;

(xi) To provide for adequate costs to parties (the complainant).

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The Act is silent as to whether the liability under the CPA is strict or fault based,

but there are decisions which have upheld the doctrine of strict liability.

In Maruti Udyog Ltd Vs Susheel Kumar Gabgotra, (2006) 4 SCC 644, the

manufacturer of the vehicle had stipulated a warranty clause limiting its liability to

merely repair the defects found if any. In view of this clause, the Supreme Court of

India reversed the findings of the National Commission to replace the defective

goods and held that the liability of the manufacture was confined to repairing the

defect, and not extending to replacement or refund.

However, no complaint can be filed for alleged deficiency in any service that is

rendered free of charge or under a contract of personal service. The remedy under

the Consumer Protection Act is an alternative in addition to that already available

to the aggrieved persons/consumers by way of civil suit. A consumer is not

required to pay any court fees but only a nominal fee. Consumer fora proceedings

are summary in nature. The endeavor is made to grant relief to the aggrieved

consumer as quickly as possible, keeping in mind the provisions of the Act which

lay down time schedule for disposal of cases.

It is said that less than 1% of the consumer disputes in India actually become

consumer cases.

2.9.1 Enforcement of consumer rights under Sale of Goods Act- 1930

Sale of Goods Act- 1930 seeks to protect consumer rights by providing for legal

protection of those rights visualized by the contracting consumers, described as

‘Conditions and Warrantees’; as well as by fictitiously reading into every contract

of sale, what are defined as ‘Implied Conditions’ and ‘Implied Warrantees’.

A stipulation in a contract of sale with reference to goods which are the subject

thereof may be a condition or a warranty. [Section 12(1)]. A condition is a

stipulation essential to the main purpose of the contract, the breach of which gives

rise to a right to treat the contract as repudiated. [Section 12(2)]. A warranty is a

stipulation collateral to the main purpose of the contract, the breach of which gives

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rise to a claim for damages but not to a right to reject the goods and treat the

contract as repudiated. [Section 12(3)].

Whether a stipulation in a contract of sale is a condition or a warranty depends in

each case on the construction of the contract. Where a particular stipulation in

contract is a condition or warranty depends on the interpretation of terms of

contract. Mere stating 'Conditions of Contract' in agreement does not mean all

stipulations mentioned are 'conditions' within meaning of section 12(2).A

stipulation may be a condition, though called a warranty in the contract. [Section

12(4)].

It is rather incredible to appreciate that the terms conditions and warrantees as

defined under the Act have much larger connotation, significance and consequence

than the marketing implications of warrantees and guarantees. But, irrespective of

the legal and marketing terminology and taxonomy, product warrantees are

categorically legal stipulations which are either essential or collateral to the main

purpose of the contract. Whether a warranty or a guarantee is very essential or only

collateral will be decided by court, going by the intention of the parties as

evidenced from the terms of the contract. A product warranty, if it is legally

construed as a condition, its breach may result in the termination of the contract;

whereas, if it is understood as a warranty, the breach will result in an obligation for

the trader to merely compensate the loss sustained by the consumer.

Further, the court is not bound by the terminology employed by the parties. The

court may assess the relative importance of the stipulation in dispute in the light of

all circumstances including the intention of the parties. The concept of a condition

is well rooted in an earlier English case, Baldry Vs Marshall, (1925). The plaintiff

consumer consulted the defendant motor car dealer for a car “suitable for touring

purposes”. The defendants suggested that a ‘Bugatti’ model car would be

appropriate; and the plaintiff depending on that assertion bought one from them.

The car turned out to be unfit for touring purposes and the plaintiff consumer

sought to reject the contract of sale and return the car. The defendant motor car

dealer relied upon a term in the contract which guaranteed the car for twelve

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months against mechanical defects and which excluded every other warranty or

guarantee. The Court of Appeal held that the suitability of the car for touring

purposes was not merely a warranty or guarantee, but a condition of the contract.

The term was so vital that its non- fulfillment defeated the very purpose for which

the plaintiff consumer bought the car. The plaintiff consumer was held entitled to

reject the car and have refund of the price.

Conditions may be either, Express Conditions or Implied Conditions.

Conditions that are agreed to by the parties are commonly referred to as express

conditions. Express conditions are usually denoted by language such as "if", "on

condition that", "provided that", "I the even that", and "subject to" to make an event

a condition. But usually in a dispute it is the court which decides whether an

agreement makes an event a condition by the process of interpretation.

If an agreement does not make an event a condition then the court may supply a

term that does so. Such conditions will be referred to as "implied" conditions, since

a court uses the process of inference to determine whether to supply a term that

makes an event a condition and what term to supply.

It is only where the expressed contract is silent on a particular point that an implied

obligation in such respect can arise. Express stipulations cannot, in general, be set

aside or varied by implied promises. In such cases the maxim "expressio unius est

exclusio alterius" applies which means, "express mention of one thing implies the

exclusion of the others".

The implication of a term is a matter of law for the court, and whether or not a term

is implied is usually said to depend upon the intention of the parties as gathered

from the words of the agreement and the surrounding circumstances. In many

classes of contract, however, implied terms have become standardized, and, it is

somewhat artificial to attribute such terms to the unexpressed intention of the

parties.

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2.9.2 The implied conditions in a contract of sale in accordance with the Sale of Goods Act, 1930:

• Implied Condition as to title: The seller has the right to transfer the legal

ownership over the object to the buyer. This implies that the seller of goods

has the right to sell them (e.g., they are not stolen, or patent infringements,

or already sold to someone else).

• Implied condition as to description: Where there is a contract of sale of

goods by description, there is an implied condition that the goods supplied

shall correspond with the description.

• Implied condition upon sale by showing sample: Where there is a contract

of sale of goods by sample, then the implied conditions are:

(a) that the bulk shall correspond with the sample in quality;

(b) that the buyer shall have a reasonable opportunity of comparing the

bulk with the sample.

(c) that the goods shall be free from any defect, rendering them un-

merchantable, which would not be apparent on a reasonable

examination of the sample [Section 17(2)].

Similar to that of Conditions, Warrantees may be either Express warrantees or

Implied Warrantees: Express warrantees are those that are expressly included in the

contract by mutual consent of the contracting parties. Implied warrantees are

assurances that are inferred as warrantees by law, irrespective of whether the seller

has expressly promised them, either orally or in writing.

2.9.3 The Implied Warrantees as described by the Sale of Goods Act- 1930.

1. Warranty of quiet possession [Section 14(b)]: In a contract of sale, unless

there is a contrary intention, there is an implied warranty that the buyer shall

have and enjoy quiet possession of the goods. If the buyer is in any way

distributed in the enjoyment of the goods in consequence of the seller’s

defective title to sell, he can claim damages from the seller.

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2. Warranty of freedom from encumbrances [Section 14(c)]: The buyer is

entitled to a further warranty that the goods are not subject to any charge or

encumbrance in favour of a third party. If his possession is in any way

disturbed by reason of the existence of any charge or encumbrances on the

goods in favour of any third party, he shall have a right to claim damages for

breach of this warranty.

3. Warranty as to quality or fitness by usage of trade [Section 16(3)]. An

implied warranty as to quality or fitness for a particular purpose may be

annexed by the usage of trade,

4. Warranty to disclose dangerous nature of goods: Where a person sells goods,

knowing that the goods are inherently dangerous or they are likely to be

dangerous to the buyer and that the buyer is ignorant of the danger, he must

warn the buyer of the probable danger, otherwise he will be liable in

damages.

Even while accepting the superiority of the Indian law dealing with product

warrantees, it should be admitted that it gives more room for subjectivity and

vagueness, than a law like Magnuson- Moss Act.

2.10.1 Consumer Protection under MRTP Act- 1969

The Monopolies and Restrictive Trade Practices Act, inter alia, attempts to control

monopolistic, restrictive and unfair trade practices which are prejudicial to

consumers. The provisions of the Act dealing with the specific aim of

extinguishing anti- consumer practices by manufacturers are as follows:

A. Control of monopolistic trade practices: A monopolistic trade practice shall

be deemed to be prejudicial to the public interest, inter alia, if the effect of

the trade practice is or would be to result in deterioration in the quality of

any goods or in the performance of any service. Where it appears to the

Central government that monopolistic trade practices prevail in respect of

any goods or services, the government may refer the matter to the MRTP

Commission for an inquiry and the Commission shall report to the

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government its findings thereon. If such an inquiry finds that any

monopolistic trade practices exists, the government may pass such orders to

remedy or prevent any mischiefs which result in such trade practice.

B. Control of restrictive trade practices: A restrictive trade practice is a trade

practice which has the effect of lessening or destroying competition. Every

monopolistic trade practice is also a restrictive trade practice. In case of

agreements which have apparently the consequences of restrictive trade

practices, the Law requires that such agreements to be registered and

submitted for evaluation by MRTP Commission.

C. Control of Unfair Trade Practices: An unfair trade practice is a trade

practice which, for the purpose of promoting the sale, use or supply of any

goods or the provision any services, adopts one or more unfair trade

practices resulting in eliminating or restricting competition; and thereby

causes loss or injury to the customers of such goods or services.

2.10.2 Unfair Trade Practices under MRTP Act- 1969

Instances of unfair trade practice include the practice of making any statement,

whether orally or in writing; or by visible representation, which:

i) Falsely represents that the goods are of a particular standard, quality or

grade;

ii) Falsely represents that the services are of a particular standard, quality or

grade;

iii) Represents that the goods or services have sponsorship, approval,

performance, characteristics, accessories, uses or benefits which such goods

or services do not have.

iv) Gives to the public any warranty or guarantee of the performance, efficacy

or length of life of a product or of any goods that is not based on an

adequate or proper test thereof;

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v) Makes to the public a representation in a form that purports to be- (a) a

warranty or guarantee of a product or of any goods or services; or (b) a

promise to replace, maintain or repair an article or any part thereof or to

repeat or continue a service until it has achieved a specified result,- if such

purported warranty or guarantee or promise is materially misleading or if

there is no reasonable prospect that such warranty, guarantee or promise

will be carried out;

vi) Gives false or misleading facts disparaging the goods, services or trade of

another person;

vii) Permits the publication of any advertisement for the sale or supply at a

bargain price of goods or services that are not intended to be offered for

sale or supply at a bargain price. (Including the offer of gifts, prizes or other

items with the intention of not providing them as offered for free, when it is

fully or partly covered by the price; or the conduct of any contest, lottery,

game of chance or skill, for the purpose of promoting the sale of any

product)

The MRTP Commission may inquire into any unfair trade practice; and may, by

order direct the discontinuation of the unfair trade practice.

Notwithstanding the specific provisions under any of these laws, a breach of

promise of warranty or guarantee can be proceeded against as though it were a

misrepresentation or fraud as defined in the Indian Contract Act. A statement of

fact which one party makes in the course of negotiations with a view to inducing

the other party to enter into a contract is a representation. A representation, when

wrongly made, either innocently or intentionally, is a misrepresentation.

Misrepresentation may be:

(i) An innocent misrepresentation, where the person making the wrong

statement believes it to be true; or where he does not know to be false; or

(ii) An intentional or fraudulent misrepresentation, where the false representation

has been made knowingly; or without belief in its truth; or without belief in

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its truth; or recklessly, without caring it to be true or false- and making the

other person to act upon it.

2.11 Warranty & Guarantee as Legal mechanisms to mitigate the consumers’ risks in shopping:

Warranty reduces buyers’ perceived risk in post purchase scenario. It suggests that

the product is backed up by after sales service and it is dependable. This may

enable the company to charge higher price than its competitors, who is not offering

an equivalent guarantee. As an innovation, companies can find other ways to

differentiate customer services. They can offer an improved product warranty or

free maintenance contract.

It was already discussed how a strict application of the doctrine of caveat emptor

will result in unilateral loss to the consumers. Any defect on the product, whether it

is manufacturing defect or one which was occurred to improper use by the

consumer will result in direct loss to the consumer. The consumer can protect his

money only by identifying defects in the products, before the purchase was

completed. A proper Warranty offered on the consumer products can invariably

moderate the risks encountered by the consumers upon shopping; and could offer

as an indemnifying legal device to spread the risks between himself and the

manufacturer/ seller. Seen from this perspective, product warrantees can be better

understood as an insurance coverage statutorily made available to the consumers in

order to mitigate their risks in shopping.

The emergence of product warrantees have led to the disappearance of the

manufacturing gimmick known as planned obsolescence, whereby manufacturers

deliberately introduce latent deficiencies in order to shorten the life of the product

(with the idea of creating a need for replacing it and therefore bringing customers

back into the market is no longer valid). Indeed, it is no longer in the

manufacturers' interests to inject flaws or weaknesses into the articles they sell, if

they have to guarantee the efficiency anyway. Why should a manufacturer who has

guaranteed a product for a definite period create further causes of trouble when the

well- being of the product comes under his responsibility? On the contrary,

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manufacturers will only endeavor to limit all expenses relating to after-sale services

by increasing the basic quality of the product at its initial stage, knowing that after-

sale servicing is among the most costly expenditure.

2.12 Product Warrantees as Standard form contracts

A standard form contract (sometimes referred to as an adhesion contract or

boilerplate contract) is a contract between two parties that does not allow for

negotiation, i.e. take it or leave it. The concept of the contract of adhesion is

originated in France and it is often a contract that is entered into between unequal

bargaining partners, such as when an individual is given a contract by the

salesperson of a multinational corporation. The consumer is in no position to

negotiate the standard terms of such contracts and the company's representative,

such as a dealer or sales person often does not have the autonomy to do so.

Contracts of warranty & guarantee, seen in perspective, could be identified as

obviously constituting instances of standard form contracts. Contracts of Warranty

& Guarantee offer no chances to the consumers to negotiate or even discuss the

terms and conditions contained therein. With the increasing incidence of taking

away those rights coming under contracts of warranty & guarantee by exempting

clauses, it would be only appropriate to comprehend the legal status of contracts of

warranty & guarantee vis-à-vis regular contracts which are privately negotiated.

According to Exploitation theory of warrantees propounded by Kessler (1943),

standardized warranty contracts are drafted unilaterally by the seller and only

involuntarily adhered to by the consumer. Standardized contracts are typically used

by sellers with strong market power. The consumer, in need of the goods, is

frequently not in a position to shop around for better terms, either because the seller

has a monopoly, or because all competitors use the same clauses. If collusion is

widespread, warranty contracts within individual industries are likely to be similar.

(Emons, 1989).

Standard form contract implies the use of printed forms containing the terms and

conditions, offered by one party to the other; the latter can either accept such terms

by signing it or reject it altogether. The choice or freedom of contract for the latter

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is to sign and accept or to leave it; he has no freedom to negotiate the terms or to

forward his choice of terms and conditions. In that sense, standard form contracts

are deviations from the doctrine of freedom of contract. Freedom of contract means

that you could choose whom you wanted to contract with, and you could arrive at

the terms you wanted by mutual agreement, irrespective of the inequalities between

contracting parties (it is also admittedly impracticable and unattainable to attain a

situation where parties to contract have exactly equal bargaining power.) In the

cases of contracts of warranty & guarantee, the consumers are given no choice to

negotiate on the terms and conditions of the warranty or guarantee; the

manufacturer will solely decide on all the facets of warranty & guarantee. Whether

the warranty is applicable to only selective parts; or whether it is comprehensive,

whether it relates to its whole life period; or to a fraction only, whether it involves

servicing only or it involves free replacement of parts …all such operational

decisions of warranty & guarantee will be taken exclusively by the manufacturer,

leaving no room for negotiation with the customers. The fatal stroke of

standardized contracts of product warrantees is that they limit the consumers’

choice of legal remedies upon a breach of contract. For instance, in most of the

contracts of product warrantees, it could be seen that the jurisdiction of the fora to

hear a consumer dispute arising at Kerala will be given as some cities in the North

India, which will clandestinely and effectively thwart any move by aggrieved

consumers to proceed against the erring Companies.

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