According to the comparison between the two stores, there are only a few differences between the extended warranties offered. RadioShack has over 10 times more locations at which they perform repairs. Furthermore, they have a higher tolerance for the number repairs they will perform on a device (unlimited). On the other hand, RadioShack may take twice as long to return the faulty product to the customer. On the whole, the rest of the criteria are very similar, and thus the two warranties are relatively equivalent.
Future Shop’s Extended Warranty Policy
Future Shop offers extended Warranties on almost every consumer products it sells. Any consumer goods that have electronic components have extended warranties on them. This policy is optional and depends on wish of Customer. Some of the products that are covered by Extended Warranties are Computers, TV, Fridge’s, camcorders and VCR’s.
Future Shop offers “lemon guarantees” which means that product is replaced after 3 major repairs. The product is repaired within 6 days. If not, then product is replaced. But they don’t provide replacement machine in mean time. Products like PC is repaired inside the store but other products are shipped somewhere else for repair but consumer does not have to pay for shipping cost. Another feature is that the warranties are transferable which means consumer can transfer warranty to new product if he sell original product.
“Future shop makes about 80- 90% profit on extended warranties while it makes only 15 – 20% on product it self” (Menzies, 2001)
RadioShack’s Extended Warranty Policy
RadioShack Claims that their Extended Warranty Plan (EWP) costs less than the fee for one repair. They boast no hidden charges, no user fees, and no deductibles.
They also have a “Lemon Policy”. This states that after two repairs in the first year of the Extended Warranty Plan, they will replace your product with an identical product or one with equivalent features.
They also offer a feature called “Over the Counter Replacement”, which applies to a majority of their products. It states that if your product fails due to normal use with the coverage period, they will replace it with an identical product or one with equivalent features. This way, the customer does not need to worry about repairs or other hassles associated with returning a defective product.
Furthermore, RadioShack’s EWP is completely transferable from one user to another. For instance, if you were to sell a RadioShack purchase to someone and there was still a valid warranty on the product, the warranty would carry over onto the new user for the rest of its valid life. This is performed at no additional cost and all the company needs is the new mailing address associated with the product.
RadioShack’s EWP offers several benefits. They provide repair service to over 800 locations across Canada. The service requires the buyer to bring the faulty product along with the EWP receipt to any RadioShack store in Canada and it will be repaired with original manufacturer’s parts. They also offer routine maintenance on most products, including check-ups and cleaning.
After talking to customer service staff of Future shop located at Windsor and to Ms. Sandra (Marketing Department, Vancouver), following observations were made
Cost of Extended Warranties vs. Average Cost of Repairs
The costs between stores are relatively indifferent (for both the cost of repairs and warranty cost). In some categories the cost is higher for one store but in others it is lower. However, the numbers suggest that it is worthwhile to take out an extended warranty, when considering the different in cost between the warranty and the associated repair. 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.
The chart on the following page looks at the likelihood of computer and television buyers purchasing extended warranty packages.
Likelihood of Consumers Purchasing an Extended Warranty
Over 30% of the customers surveyed, stated they were certain they would not buy an extended warranty with the purchase of a television or computer. Only 24% and 15% of computer and television buyers respectively, stated they would definitely buy the extended warranties for these products.
Reasons for Choosing Extended Warranty on a Television
The most common reason stated for purchasing an extended warranty package on an item such as a television is peace of mind (30%). People want to feel at ease when they are buying expensive goods, and by purchasing this added insurance, they feel reassured that they have no worries about future mishaps.
Why Would You Not Take an Extended Warranty on a Color TV?
The most common reason for people not taking out an extended warranty on an electrical device such as a television set was that it was too expensive (38%). Many people don’t have enough money to buy the product in the first place, and tend to buy on credit to begin with. Therefore, asking them for more money, is simply out of the question.
How Long Would You Expect a New Appliance to Last Before Repairs?
There was a correlation although not a particularly strong one, between likelihood buying an extended warranty and expected life span of appliance. Those who thought color TV would last for three years or less generally expected to take out extended warranties.
Customer Comments and Complaints (Future Shop)
We approached a couple of Future Shop customers and asked them about their past extended warranty experiences with Future Shop purchases and these were their responses:
“I had bought a Compaq Laptop from Future Shop in 2000. I have had several troubles with it and have had it in their shop four different times already to have everything down on it. I have had three mother boards replaced on it and the power supply replaces as well.
It crashed on me again, and my warranty is still good. I took it in and explained to them the situation, and the clause that they have in their agreement about replacing the computer if a part failed three separate times and needed to be replaced that they would give you a new computer no questions asked. They told me that they had no record of the computer ever being in their shop to be fixed, and since this was the first time they couldn't do anything about it. So I took in my receipts and they then acknowledged that they had indeed repaired it before but now they are saying that it wasn't a motherboard that they replaced on of the times, but it was a part of the motherboard. They are giving me the run around since they do not want to have to replace the computer.
They are refusing to do anything about this expect fix again. I will never shop at FUTURE SHOP ever again, and I am letting everyone know what a bad experience it was. Stick to smaller stores where they treat the customers right, and actually keep their word.” (Anonymous, 2002)
“I bought an HP Notebook from Future Shop for about $3500 (including taxes and their extended warranty) in Sep 2000. I just had the battery fail on me and took it back for fixing/replacement under warranty. "No sir, it's a consumable, that’s your problem" was the gist of Future Shop's computer manager conversation with me.
After some time arguing that it is part of the computer and the salesman did not mention this when I bought it and it does not mention anything about it in the flyer they gave me explaining the coverage - I asked for my money back on the warranty ($400+) and walked away.
I was a very good customer to them, but now I will never buy anything from Future Shop again.” (Tyson, 2002)
Customer Comments and Complaints (Radio Shack)
We approached a couple of RadioShack customers and asked them about their past extended warranty experiences with RadioShack purchases and these were their responses:
“Apparently, batteries for notebooks are not covered by anyone's extended warranty (that's what I'm finding out).
But, if you purchase a battery (alone) from RadioShack, you can usually purchase an extended warranty for that part by itself! Thanks for the heads up RadioShack. It seems everyone is out to screw you these days!” (Chris, 2002)
“I purchased a Packard Bell computer from Radio Shack in April 1999. I purchased the extended Warranty at that time. I was having trouble with the floppy drive not working.It never had worked properly so on April 20th of this year I took it in for repairs.On May 16th I got it back. With catching up with the e-mail etc. I didn’t try the drive until May 29th. It didnt work. Took it back to the store and it went to InterTan Technical Services in Coquitlam again. Got it back on June 13th. After driving home found that it had been damaged. Returned to store and told to use it without the front cover until the parts could be ordered.
On June 27th hear the one piece is in but not the 2nd one. Finally on July 19th the computer is picked up to have the piece installed. On July 30th it arrives back looking great only to find that it won’t work because the buttons on the front cover are too tight. Return it to be fixed. I feel this whole episode has been unreal, a complete lack of any consideration of the customer. I have driven almost 800 km. back and forth with this problem. I feel Radio Shack and their Warranty service is a laugh and it is about time they reimbursed me for my troubles, mileage and even coughed up with a new computer after they dropped mine.” (Becky, 2002)
A Little Hands-on Experiment
We decided to visit Windsor’s Future Shop, in order to determine the value of their so-called “valuable extended warranty service”. We showed interest in purchasing a $200 Sony stereo system. Just before billing us, the salesman went into hard-sell mode to convince us to buy a three-- year extended warranty for $30 (or 15% of the cost of the product). The thrust of his pitch: should something go wrong with the unit after one year, it would cost "at least $40" to repair the defective stereo in a shop. "You can't go wrong!" he insisted, and assumed we would jump at the opportunity for an extended warranty.
We told him that we had lost interest in the product because it was a little out of our price range and all of a sudden he offers us a discount, but still insists on the extended warranty. We believe that the employees’ commission is slightly higher in the warranty, because he was trying to force the sale on us. 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.” (Sorgen, 2001)
References
; David Menzies; Canadian Business, Toronto; Apr 16, 2001; Vol. 74, Iss. 7; pg. 66, 1 pgs
; Caroline Sorgen; Good Housekeeping, New York; Jul 2001; Vol. 233, Iss. 1; pg. 188, 1 pgs
Interview with Customer Service Representative at Future Shop, Windsor, ON. Nov, 2002.
Interview with Customer Care Associate at 1-800-The-Shack, RadioShack Hotline, Nov. 2002
Interview with Future Shop Customer, Anonymous, Windsor, ON, Nov. 2002
Interview with RadioShack Customer, Becky, Windsor, ON, Nov. 2002
Interview with RadioShack Customer, Chris, Windsor, ON, Nov. 2002
Interview with Future Shop Customer, Tyson, Windsor, ON, Nov. 2002
