The first decision you’ll need to make is if your business should even implement an Extended Warranty program at all. It’s worth noting that I’ve called out “Extended Warranty” in the title of this article, but there’s a difference between an Extended Warranty (a policy that extends the lifetime of the manufacturer’s limited warranty) and a Product Protection Plan (a policy that typically covers Accidental Damage from Handling, or “ADH”). Both Extended Warranties and Product Protection Plans are available to retailers who use Clyde. For the sake of this article, we’ll refer to the combination of these two offerings as an “Extended Warranty Program.”

Why Some Businesses Mistakenly Choose to Opt Out

Given unlimited resources, most retailers would choose to implement an Extended Warranty Program, but typically de-prioritize this kind of program due to a few usual suspects:

They are resource intensive:

Extended Warranty Programs have been traditionally resource intensive. If the retailer is large enough to partner with an independent claims administrator or with an insurer directly, there are numerous steps involved in implementing and maintaining such a program, not limited to: cost negotiations, operational flow design and optimization, catalog and contract matching, performance adjustments, programming offerings into the website, and maintenance of any of these items). Managing these tasks typically takes a team of people.

They are complex:

If it’s your first time establishing a traditional extended warranty program, there’s a lot to learn. Although extended warranties are not insurance instruments, they are still heavily regulated at both the federal and state levels.

Underestimates of the financial impact:

When most business leaders (probably such as yourself) think “Extended Warranty Program”, they don’t typically think “Now that...that is a Big Money win!” The fact is that it’s a completely new concept that Extended Warranty Programs are an accessible option for all businesses - from SMBs to Enterprise. As a result, the financial impact to a business savvy enough to implement one is (though often overlooked) actually quite significant. Maybe even “Big Money.”

7 Things to Consider when Evaluating an Extended Warranty Program

1. Show Me the Money!

To decide if offering an Extended Warranty Program is right for your business, it first needs to measure up against your other priorities - the financial gains need to make sense. The Moolah. The Cha-Ching. The Dough. That ROI. To help you determine if it does, I’ve created a worksheet / calculator you can download that walks you through both the direct and indirect revenue effects of implementing an Extended Warranty Program in your business.

Direct and indirect revenue chart

2. Brand Alignment

One of the concerns I’ve heard from several brands is whether offering extended warranties reflects poorly on the quality of their brand - typically something these brands work very hard to bolster. There are very few circumstances, however, in which this holds true.

Misperception of Quality Disassociation

Typically, consumers interested in purchasing extended warranties are educated in what they are and appreciate the opportunity to buy them, protecting their shiny, new purchase even more than your brand guarantee or limited warranty could. Extended warranty CTA best practice is to clearly offer additional “product protection”. “Extended Warranty” is so yesterday.

Amazon Protection - Product Page Representation
Clyde Protection - Product Page Representation

3. Ease of Use

If you’re considering working with an insurance provider or claims administrator, ask for a thorough demonstration of their warranty program management software. Adequate software should be easily able to integrate into your current systems. The most important integration is the matching of the correct types of extended warranty contracts and terms with your existing product catalog, as well as cart-product and order-product functionality. The software should also offer built-in tools like super users, user management, performance analytics, EW markup management, EW sold contract details, and category, subcategory, and individual product customizations.

In the absence of a sufficient software platform, you and your team will need to complete each of the tasks above manually.

4. Legal Compliance

Extended Warranties are still heavily regulated at both the federal and state levels. We cover a brief history on product protection here, where you can read more about the Magnuson-Moss Warranty – Federal Trade Commission Improvement Act and other important legislative developments for extended warranties. Ask your Extended Warranty Program solution provider to speak to how they are compliant at both the federal level and across all 50 states.

5. Flexibility

Nobody likes to be locked into long-term contracts or exclusivity clauses. When evaluating solution providers, ask about how many insurers they represent and if they have any exclusivity clauses. Ask about what courses of action you have if customer service levels need improvement. The right Extended Warranty Program should leave you with the flexibility to swiftly make changes that are right for your business.

6. Breadth of Coverage

Make sure that whatever solution providers you’re evaluating have experience and previous examples of covering your specific type of products. Certain insurance providers specialize more in some areas than others - such as furniture, jewelry, or consumer electronics. Although most insurers will provide custom underwriting if the opportunity (your revenue) is large enough, you should still evaluate their network of service centers, as well as any other retailers they are currently servicing in that category.

7. Price

Last, but certainly not least, is price. Make sure the prices offered for extended warranties are competitive. If you’re unable to apply 25-50% of a markup on the prices you receive and stay price-competitive, your costs are most likely too high. Keep in mind that the most significant revenue effect of selling an extended warranty is securing the customer’s second sale should the product fail (which is 20% of the time).