In our latest white paper, we discuss the effects of product protection on consumer confidence and willingness to pay.
There is not an abundance of data driven information available to the retail community regarding extended warranties, accident protection, and the effects these offerings have on a retailer’s most valuable asset: their customers.
Consumers Are Becoming More Educated
Until recently, offering extended warranties to the consumer was something accessible only to the largest of retailers, brand manufacturers, and the automobile industry. What little exposure the majority of retailers have to extended warranties is heavily influenced by the experience consumers have had with these big-box, in-store, profit-rich environments¹. Opinion editorial content on the subject of extended warranties often villainizes the service as “expensive” and “not worth it.”
However, research shows that still one third of consumers today choose to purchase an extended warranty or accident protection. Moreover, this same research found that attachment rates had a positive correlation with consumers’ familiarity with extended warranties and how they work (Wolf, 2017).
Running product protection programs have traditionally been a resource intensive endeavor with very little to no technological or operational efficiencies in place. The extended warranty program of old is also fraught with negative customer experiences. With rapidly rising minimum expectations for their shopping experiences, consumers today are more educated than ever.
Rather than categorically identifying product protection plans as poor purchase decisions for consumers, the data indicates that consumers are becoming more educated in both the quality and applicability of protection plans for their purchases, leading to higher confidence levels and higher willingness to pay when making purchasing decisions.
Offering Product Protection Increases Willingness to Pay
We combined qualitative and quantitative observations from transactional history over a five month period where consumers were given the opportunity to add product protection to their purchase at the point of sale.
We collected transactions over 42,500 eligible products sold by 48 retailers over a five-month period. The average price for the 40,000 products purchased without a protection plan was $269.24, whereas the average price for the 2,500 similar products purchased with a protection plan was 38.8% higher, averaging $373.74 in value.
Over this same time period, we have experienced shoppers asking which stores offer protection plans for the type of product(s) they were looking to buy. These consumers expressed their intention to purchase a product at a higher base price from the retailer offering product protection than a lower price from a retailer not offering product protection.
We are not insinuating that all consumers who buy protection plans are educated shoppers; however, we are noting that self-identified, educated buyers have expressed their appreciation for extended warranties and accident protection when offered.
Without purchase history from retailers prior to offering protection plans through Clyde, it’s difficult to identify causation with regards to the effects of offering product protection on consumer confidence and willingness to pay. What we can clearly identify, however, is that consumers have an increased willingness to pay for products when purchasing product protection plans, as demonstrated by substantial increases in average product value and customer feedback.
Furthermore, we conclude that advances in previously technologically disadvantaged sectors support the theory that better processes and technology, as well as consistently accessible and accurate information, lead to better customer experiences.
This level of customer service was not an option in the recent past of the extended warranty industry. Today, services like Clyde offer retailers the ability to seamlessly integrate software, processes, and accredited insurers to offer their consumers product protection and, ultimately, a better buying experience.
You can download the full white paper here.
 Analysis in the US shows extended warranties accounted for almost half of BestBuy’s operating income in 2003, and that profit margins on warranties ranged from 50% to 60% (“The Warranty Windfall,” Business Week (December 19, 2004)). Warranty Week 2005a shows that Ford and Dell each brought in more than $1 billion a year through the sale of extended warranties in 2005. Dell’s extended warranty revenue as a percentage of operating income sales rose from 24% in 2003 to 38% in 2005 (Warranty Week 2005b).