Why Are Extended Warranty Plans So Crucial To the Retailer?

Profits R Us!

To the retailer, extended warranty plans are the most prized profit available because of its virtual no-cost positioning in the store. What do I mean by that?  Free money!  The need to payout on these plans is rare.

In the store, the EWP is just a brochure.  There is no corporate buyer involved, no transport cost, no warehouse cost, no inventory cost, no merchandising cost, no labor cost, no inventory tax, and so on.  And it's a service most people will ever use.  It is the ideal way to make a profit.

Over the past ten years I have sold hundreds of extended warranty plans.  In the late ninety's a customer could buy a five-year plan on a computer desktop which started on the day of purchase.  It coincided with the 1-year manufacture's warranty covering services the manufacturer did not cover, such as shipping.  The plan included technical support (only on hardware,) wear and tear and surge protection.  However, the five year plan didn't last too long.  Three years soon became the norm and currently it is two years.  Why?  Because the company behind the plan needs to also turn a profit.  A three-year lifespan, and beyond, is normally when technology products begin to fail.

In the past, plans on technical products under $300 ran for up to three years and began after the Manufacturer Warranty expired.  Now it begins the day of purchase (covers what the manufacture won't) and you can only get them for two years.  I understand each retailer may be a little different, this is my experience, but I think you get my point.

The value of EWP's is now suspect because the duration of the covered period is decreasing while the price of each tier continues to rise.

If the value continues to decrease while the price continues to rise why do consumers continue to buy them?  Ignorance, meaning they just don’t know the history of these plans.

Much management pressure dictates the salesperson hammer this one home.  Why does the salesperson place this brochure in your hand.  This gives it tangibility and lends credibility to the pitch.

Look around the next time you're in an electronics store and see if you spot these brochures strategically placed in handy to reach places or in the back pocket of the salespeople.

Tomorrow, a secret on how retailers set up a ruse to lend credibility to these plans.

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The definition of a chump:

a gullible person, a sucker; someone easily taken advantage of, the target of a scam.

Learn from a former salesperson and trainer how salespeople drive sales. Learn how to keep more money in your pocket where it belongs! There are two ends of every sales stick!  One end cries 'chump.'  The other end boasts 'champ.'  I know which end of the stick I want to be.  How about you?