Dictionary

Meaning of Goodwill

Depending on the industry, it is not always easy for many entrepreneurs. It is important to pay attention to the product life cycles, which have shortened significantly over the years, as well as to the rapidly changing consumer trends. In this context, factors such as customer satisfaction and customer loyalty play an important role for you. The importance of an instrument is often very underestimated here. We are talking about the term goodwill.

What does goodwill mean?

The term goodwill is generally understood to mean a concession between the retailer and your customer or your contractual partner. But from a purely legal point of view, goodwill is not a legal obligation. You can grant goodwill, but you don’t have to. The word goodwill itself comes from the French word coulant . In Germany it was not known until the beginning of the 18th century and was included in the Kaufmanns Lexikon in the mid-1840s.

More detailed definition of goodwill

The definition of goodwill is important for you as an entrepreneur and of course also for your customers. For most customers, the term describes a type of gift. You translate it with goodwill or with a favor. The customer very often equates goodwill with a guarantee . But this is wrong, because the two terms have absolutely nothing to do with each other.

Goodwill in everyday life

Let’s take the Christmas business as an example. People buy gifts for other people. They give it away in the belief that the recipient will like it. Unfortunately, this is not always the case. So what does the recipient do? Right, after the party he goes on the way to exchange this gift. But the gifted goods are free of any defects. From a purely legal point of view, there is no right to an exchange at all. And yet most retailers like you comply with the customer’s request and exchange the goods. And that is exactly what is meant by goodwill. You are offering your customers a solution to their problem. They are very pleased about this and are satisfied with you as a retailer. If you deny him this goodwill, he will react angrily about it, even though the law is on your side.

Note:

If you approach the customer and offer goodwill, this is also strengthening for your reputation management !

What framework is there for goodwill?

In the context of an agreement between two contractual partners, goodwill is not part of the contractual obligations. A unilateral concession from a single contracting party is always to be seen as goodwill. This accommodation is always based on a voluntary basis. From a purely legal point of view, it is therefore a voluntary decision to waive contractually established rights. Goodwill can only be granted after the order has been completely fulfilled. It applies outside of any warranty claims.

What is the connection between goodwill, guarantee and liability for defects?

As a retailer, you can always grant goodwill when all of the customer’s actual claims have expired. But this also means that there is no direct connection between guarantee and goodwill. In order to clarify the exact difference here, I want to illustrate the terms freedom from defects, non-defective, guarantee and their principles again in detail.

Principle Description
Freedom from defects As a seller, you are obliged to sell your customers a product or service that is free from material and legal defects. This is stipulated and defined in Section 433, Paragraph 1, Clause 2 of the German Civil Code. The material defect always relates to the nature of the object of the contract. On the issue of legal deficiency, it refers to possible other parties who could make a claim. This is recorded in the BGB because it is important to consider goodwill.
Liability for defects If the principle of freedom from defects is not met, liability for defects applies. This means that you as a dealer will be held liable and have to provide additional performance, accept a withdrawal from the sales contract or pay the buyer compensation.
Warranty Guarantee is very often confused with goodwill. In many cases, however, a customer is only granted a guarantee for a certain period of time. However, this is to be seen as a separate service for liability for defects. The guarantee is not a legally binding service either, but rather a voluntary offer. However, if a guarantee promise is made when concluding a purchase contract, this promise is binding for you as the dealer.

Conclusion

Goodwill is not to be compared with a guarantee, liability for defects / warranty or even a discount. It is more likely to be understood as a voluntary compromise without any legal obligations. Goodwill serves you primarily as an instrument for customer loyalty and customer acquisition and strengthens the image of your company in the long term. However, it must be used to the right extent and sensibly. You always have to make sure that the goodwill costs are not higher than the benefits you get from them. It is also important that you set up a controlling system so that you do not lose track and the liquidity of your company is endangered.

Goodwill