What You Probably Didn't Know About Extended Warranties

Extended warranties, as we know them today, were first offered to car buyers in the 1960s. Competition from foreign car manufacturers necessitated that major domestic automakers offer comprehensive protection coverage on all “wear items” as well as the labor required to fix the vehicle. Over time these extended warranties began to cover virtually anything that could go wrong with a car within the first few years of purchase or 100,000 miles of use.

While most consumers are familiar with the evolution of warranties in the automotive space, few are aware of their impact on consumer goods in recent years. The vast studies conducted by automakers like Ford, GM and Chrysler found that not only were extended warranties necessary to remain competitive, but they also served as a key factor in turning first-time buyers into life-long customers.

Similarly, consumer brands have made a connection between extended warranties and their ability to sell multiple products and upgrades to the same consumer.  Amazon, Best Buy, and Walmart are some of the biggest sellers of extended warranties in the US today, while Apple’s “AppleCare” program has reimagined what a warranty program can do in terms of customer retention.

But it’s not just the global players that have found significant monetary and brand value in extended warranties. Merchants, of all sizes, have come to understand the intrinsic value of the extended warranty, taking them from the world of fine print to the forefront of their business.

What are extended warranties?

Extended warranties are referred to by different titles depending on the industry, ranging from service contracts to maintenance agreements. What they all share is a common definition. Extended warranties are simply prolonged warranty offerings that merchants offer to consumers in addition to a standard product warranty. These extended warranty can be offered by the warranty administrator, the merchant or the manufacturer. These extended warranties serve as an insurance policy on your consumers purchases, safeguard it against expensive, unforeseen repairs.

What do extended warranties cover?

What is covered under an extended warranties can vary from industry to industry and oftentimes requires a consumer to read the fine print of their contract. But, by and large, extended warranties often cover the following: 

Electrical or mechanical breakdown

From a car down to a smart watch, extended warranties protect consumers when there is an incidence of electrical or mechanical malfunction within their purchase. 

Accidental Damage From Handling (ADH)

Many extended warranties include protection from ADH. As an example, laptops that suffer damage from any accidents stemming from normal use are covered starting from the moment of purchase. Accidents like drops and spills during the term of the contract are covered, while operational or mechanical failure caused by theft, misplacement, negligence, viruses, or reckless behavior are not.


Who offers extended warranties?

Extended warranties are offered virtually anywhere consumer products are sold. To give you an idea of the variety of industries that utilize extended warranties, here are just a few of the sectors that Clyde covers. 

Consumer electronics

Auto Parts

Jewelry

Appliances

Furniture

Outdoor Equipment

Mattresses

Bicylces

Musical Instruments

Drones

Sports Equipment


What types of products offer extended warranties?

Blenders

Televisions

Smartphones

Diamond rings

Stationary Bikes

Speciality mattresses

Drumkits 

Rowing machines

Drones

Firepits

Couches

Auto Parts

How much do extended warranties cost?

The cost and length of extended warranties varies significantly by sector and are often tethered to overall product cost. Automobile extended warranties generally range from $300 to $700 per year, while smartphone extended warranties fall in the $10 to $25 range while providing monthly opt outs. 

Benefits of extended warranties

For Merchants

In the eyes of consumers, warranties have become synonymous with high quality products. It’s akin to a merchant standing by their product from day one, while also providing a consumer with guaranteed peace of mind. Consumers have also begun to expect guarantees when purchasing items. If they feel secure that they’ll be satisfied with their purchase, they’re more likely to make that purchase in the first place.

For Consumers 

Any purchase, large or small, comes with a bit of trepidation about the period of time one can enjoy the item. Product warranties provide consumers with peace of mind and a feeling of security.

Best extended warranty examples

Smartphones

Now that smartphones have shot past the $1,000 mark, insurancing purchases against electrical damage is both wise and economical. Services like Clyde have allowed merchants to create flexible and affordable plans that protect consumers in the event of unexpected damage. It is worth noting that while some plans may seem cheap on the surface, high deductibles have the potential to make the contract less economically appealing in the long run. 

Appliances

A manufacturer’s warranty or factory warranty often applies to appliances in the short term, but an extended warranty has the potential to cover nearly inevitable wear and tear issues. Blenders, toasters, and air fryers can all be covered in the event of mechanical or electrical failure, which is a wise investment for consumers who plan on using these kitchen appliances with regularity. 


Seven Things Merchants Should Consider when Evaluating an Extended Warranty Program

How much revenue can you expect

The beauty of warranty programs is that with careful planning, you can determine within a finite window just how much revenue you can expect to collect from said program. To help you determine if it does, we’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.

Brand Impact

In recent years, the negative stigma surrounding warranties has lifted, but it is worth monitoring and aligning your messaging to reflect the positive impact warranties deliver to consumers. Research has proven that extended warranty offerings with CTA language centered around  “product protection” have performed better than those that directly 

Ease of Use

Consumers have historically disliked warranties because they’re not sure how to access their benefits when the time comes. Utilizing an ease-to-use platform like Clyde’s can actually delight your customers and make them feel like their investment in the warranty and by extension your brand was a wise one. 

Legal Compliance

Both the federal government and states have weighed in on what should be covered in terms of factory or manufacturer warranties, but there’s also compliance issues within the extended warranty space. Consulting a lawyer and insurance provided is vital before offering a program to consumers. 

Flexibility

While long-term contracts are more profitable, offering warranties that have shorter time horizons or opts out is a delight balancing act, because consumers love to have options available to them. 

An Experienced Insurer

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.

Competitive Pricing

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).

Extended warranty management software

Clyde leverages multiple partnerships to bring a robust catalog of coverage options, facilitating extended warranty at the date of purchase, warranty extension plans, accidental damage coverage at the date of purchase, and limited warranty and limited warranty extension programs. Our platform was designed to provide a simple and transparent insurance experience for your business, your team, and your end-customers.