Why Consumer Reports Is Wrong About Extended Warranties
By Joe Erdeman
In its December issue, Consumer Reports warns consumers to be wary of the extended warranty sales pitch during the holiday season. But retailers may want to warn their customers not to believe everything they read.
The publication suggests that only a few consumers benefit from the peace of mind and protection that extended warranties provide. The numbers, however, tell a different story. In reality, millions of consumers enjoy the benefit of product protection. About 250 million extended service plans are sold annually to protect consumer electronics, according to the Service Contract Industry Council.
For decades, extended warranty providers have been plagued by claims that service plans provide little value to consumers. But attempts to discourage consumers from purchasing extended warranties - or retailers from making the offer on the showroom floor - may deny consumers the services they want and deserve.
As a leader in the protection services industry, we have found that extended warranties improve the ownership experience. Extended warranties are much more than just break/fix insurance policies. They provide a wide variety of coverage and services that last long after the manufacturer's warranty expires. Many offer extras like 24-hour technical support and self-help tutorials, remote diagnostics and on-line data backup services that increase the enjoyment consumers experience with the products they own. Consumers who buy protection along with their products enjoy greater peace of mind and a longer, more satisfying relationship with their purchases.
Let’s face it. Even the most well-made products have been known to fail, as evidenced by the high volume of repairs and replacements we handle each year. Exactly when a product will fail is not only impossible to predict but hard to understand, according to Wired magazine. Variables such as how it is used, where it was constructed and what external conditions it was exposed to all contribute to product lifespan. Products tend to last a lot longer when they are maintained and serviced properly. Many extended warranties offer routine maintenance to keep products working properly as long as possible.
Today’s high-end electronic devices are made with delicate, intricate components that are more prone to malfunction than older technology. Since many of these gadgets are also smaller in size, they are easier to mishandle or damage -- especially in the hands of teenagers and young children. Retailers generate goodwill each time a protection plan comes to the rescue in today’s wired world.
As products become more sophisticated, they also are more expensive to repair. Extended warranties take the guesswork out of service. Replacing a laptop hard drive can run about $200. A tablet’s main board costs about $300, a refrigerator compressor about $500 and an LCD TV control box about $560, according to industry reports. At a cost of about 10-20 percent of a product's purchase price, extended warranties are less expensive than typical repair costs, and the service plan often pays for itself after only one repair. The front-end purchase of a warranty adds one-stop, retail convenience for shoppers.
Finding a qualified repair technician can be a challenge, as the pool of trained service providers for high-end electronics and devices has diminished. Extended warranties eliminate the difficulty of locating a qualified service technician by offering a national network of certified, fully vetted repair providers. Consumers can also take advantage of in-store or a depot repair, with no out-of-pocket expenses – including shipping.
Self-help is also an option. A simple call to the extended warranty provider’s 24-hour technical support line can provide the remote help consumers often need. Extended warranties offer a variety of technical support services, and in many cases, consumers can receive answers to their questions and resolve technical issues themselves. Every product repaired is one less item that is returned to the store, reducing operating costs for retailers and hassle for the consumer.
Some “consumer advocates” advise shoppers that their credit cards will serve to protect their product purchases. The fact is, credit card product protection is quite limited. Only half of credit card companies cover all of their cardholders, and not all products are covered. In many cases, the manufacturer’s warranty is only extended for up to one year. Service plan coverage can extend above and beyond the basic manufacturer’s warranty for several years and cover a wide variety of perils.
Credit card coverage excludes wear and tear, accidental damage and power surges. And unlike extended warranties, credit card protection policies may not cover related expenses such as food spoilage for a malfunctioning refrigerator, or shipping costs, which can run as much as $97 for a 10-pound package. Extended warranties often cover shipping or assign repairs to a local technician with no shipping required, and they typically include a no-lemon policy, replacing the product if it fails three times in 12 months.
Yes, extended warranties are a great way to enhance retailer revenue, but they are designed with consumers in mind. They offer a much wider variety of protection than they are given credit for, and consumers who make the decision to purchase them are very often glad they did. Retailers that offer service plans create a competitive edge by strengthening customer relationships and enhancing brand loyalty. In today's marketplace, value-added services like extended warranties can differentiate retailers and keep consumers coming back for a lifetime.
Joe Erdeman is president of Assurant Solutions’ extended protection business.