collateral as insurance against unforeseen, detrimental events.

In the goods market, the seller might offer a money-back guarantee, an agreement that functions as a

promise of quality. This strategy may be especially important for a company that sells goods through mail-

order catalogs or over the web, whose customers cannot see the actual products, because it encourages people

to buy something even if they are not certain they want to keep it.

L.L. Bean started using money-back-guarantees in 1911, when the founder stitched waterproof shoe rubbers

together with leather shoe tops, and sold them as hunting shoes. He guaranteed satisfaction. However, the

stitching came apart and, out of the first batch of 100 pairs that were sold, customers returned 90 pairs. L.L.

Bean took out a bank loan, repaired all of the shoes, and replaced them. The L.L. Bean reputation for customer

satisfaction began to spread. Many firms today offer money-back-guarantees for a few weeks or months, but
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