At this year’s Warranty Chain Management Conference in San Diego, Warranty Week’s editor, Eric Arnum, discussed the state of extended service contracts in the consumer product market. Noting that extended service contracts sales totaled $35 billion last year and that the trend will likely be continued growth. Mr. Arnum also noted that extended service contract sales were down for appliances, but had increased for cell phones and vehicles. The theme of Mr. Arnum’s keynote address, and that of the entire conference, was that enhancing the customer experience enhances a company’s success by adding value to their products.
Fulcrum Analytics’s analysis of its 2013 consumer survey authored by David King finds similar results—customers are buying more extended service contracts than they were just five years ago. The purchasers’ primary motivator for buying an extended service contract is the comfort in knowing that the extra protection will potentially extend the length of ownership and the overall value of their newly purchased product. Consequently, consumers making a purchasing decision about products with similar features and comparable prices may be swayed by the availability of an extended service contract. Fulcrum Analytics’s Tara Piazza found this to be especially true for home appliances and outdoor power equipment. Fulcrum Analytics’s takeaway from their survey? Manufacturers and retailers of consumer durables may be able to distinguish themselves from similar products by providing such coverage.
Comparable findings were recently described in a Consumer Reports article detailing the results of a recent survey of customer satisfaction regarding extended warranties on automobiles. The article found that, as a whole, 45% of customers were satisfied with their purchase of an extended service contract. Respondents answered that peace of mind was the most common reason for purchasing an extended warranty service plan. While the tone and content of the article intended to demonstrate that customers were largely unsatisfied with extended service contracts, it effectively showed that many consumers derive a large benefit from extended service contracts for certain lines of automobiles.
While the results of these surveys and reports do not provide clear-cut answers regarding customer attitudes of extended service contracts, they do give insight into consumer beliefs as to when such offers are beneficial and desirable. Firms that are able to parse the data and provide extended service contracts to the right consumer segment for the right products stand to profit immensely in the coming years.