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The Woes of Extended Warranties.

Extracts from this document...


The Woes of Extended Warranties Tieying Chen Costa Constantis Pargat Khaira Omer Sheikh Sushil Shingari Dr. Dickinson November 26th, 2002 Introduction An extended warranty may be purchased at the time you buy your electronic device or appliance; it may also be possible to purchase one much further along in your ownership experience. If you're the type who likes to be prepared for all eventualities, an extended warranty may be just what you're looking for. Bearing in mind the ever-increasing cost of electronics repairs, these contracts can make a lot of sense. The purpose of this paper is to delve into consumers' viewpoints on extended warranties. The topic will be further analyzed by studying the extended warranties offered by Future Shop and RadioShack. Then, a few consumer interviews will be presented detailing their previous experiences with extended warranties from the two stores. Lastly, the paper will conclude with a brief discussion on the validity of extended warranties. Definition of an Extended Warranty An extended warranty is a contract purchased to protect the consumer goods against the unexpected costs of breakdown, for a specific period of time. The time can range from period of 2 to 4 years. This normally begins after manufacturers guarantee. These are usually bought directly from the retailer and sometime offer coverage for theft and accidental damage. Background Information on Future Shop Established in 1982, Future Shop's first store was located in Vancouver, British Columbia and showcased 4,000 square feet of the latest consumer electronic products. During in the late 1980s, Future Shop followed an aggressive growth strategy, quickly expanding operations in provinces of Alberta, Manitoba and Ontario. In some 20 years, Future Shop has grown from a "one store Operation" located in Burnaby, British Columbia, to Canada's largest, fastest growing national retailer and e-tailer of consumer electronics with more than 100 stores from coast to coast and still growing. Background Information on RadioShack Radio shack on the other hand was established in 1919 in Fort Worth, Texas. ...read more.


Nevertheless, the consumer must keep in mind that products these days are built with higher quality standards and their parts tend to last longer. Therefore, the probability that a device will malfunction is very low. These tables indicate that if a consumer is paranoid about the possibility of malfunction in their purchase, they should take out the warranty. Most likely, however, the warranty will not be used and the consumer is spending additional money for unnecessary protection. Survey of Customers' Views on Extended Warranties A survey was conducted by Future Shop in which 2000 household decision makers were asked for their input on extended warranties in general. This sample included a group of 100 individuals who had already utilized some form of extended warranty to repair or replace a purchase. The survey discovered that there is an overall increase in consumers' reliance on extended warranties in products such as personal computers, televisions, and fridges. Furthermore, all consumers expect manufactures of large electrical appliances to provide some sort of manufacturer's guarantee on their products. The following chart depicts the length of time consumers believe a manufacturer's warranty should be valid for. Consumers' Expecations of Manufacturer Guarantees A vast majority of the consumers surveyed (98% in total) expect at least a one year manufacturer guarantee on the goods they buy. Only 2% will settle for a manufacturer guarantee with a duration of less than one year. Many individuals have different viewpoints on extended warranties. There are many things that come to mind when a customer hears the words "extended warranty". The following chart depicts the first thing consumers thought of when they heard those two words. What Comes to Mind When your Hear "Extended Warranty"? A whopping 54% of the individuals surveyed stated that their first thought is the requirement of additional payments, and thus they regard extended warranties in a negative light. Only 26% believe that the true value of an extended warranty is to cover to costs of repair once the manufacturer's warranty runs out. ...read more.


So, we let him in on our little experiment, and they proceeded to eject us from the store! Our findings; These warranties are a rip-off to consumers, and the people offering these so called "benefits" are out to maximize their profit-margins by fooling the consumer. General Findings According to the interview we conducted comparing Future Shop's and RadioShack's extended warranty policies, both stores were quite similar. The only major differences were the waiting period for repairs (RadioShack may take and extra month to repair your product) and the amount of repairs they will perform under the warranty (Future Shop only performs 3 whereas if RadioShack's product breaks down 3 times in a year they will supply you with a replacement). It appears as RadioShack is slightly more lenient but at the same time their response time to repairs is twice as long. Therefore, neither company has a measurably competitive advantage over the other in terms of their warranty plans. Conclusion It appears as if people are generally unhappy about their extended warranty purchases. We did not have one happy customer with their previous extended warranty experiences. Furthermore, a majority of shoppers don't even consider purchasing an extended warranty in the first place. I guess the moral of this story is both Future Shop and RadioShack need to improve their current extended warranty packages. They should either make their claims more specific, or they need to lower their extended warranty prices. Too many consumers are not falling for this money trap, and stores need to begin playing their cards right if they want to cash in on this potential Cash Cow. "Paying for a service contract is theoretically cheaper than paying for major repairs-but, chances are, you won't need one, says Jack Gillis, spokesman for the Consumer Federation of America. Today's appliances and electronics are better made, so problems are usually discovered when you're still under the standard warranty (which covers parts and labor for 90 days to three years). Also, most contracts don't protect against negligence; if your child shoves a sandwich in the VCR, you're out of luck. ...read more.

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