You’ve probably seen the headlines about how COVID-related social distancing and sheltering in place has led to a spike in e-commerce sales.
Although unemployment is still (and will continue to be) a major issue, some people have found themselves with more cash on hand, whether that’s from reduced spending on entertainment, stimulus checks, or expanded unemployment benefits. And some of that money has made its way into increased e-commerce sales.
A CC Insight study found that e-commerce sales grew 68% from April 2019 to 2020, which was significantly higher than the previous year-over-year growth record of 49% hit in January (which included holiday season growth). The April all-time high is particularly notable considering that overall spending is down, with US spending seeing a record 13.6% decline in April.
As e-commerce has spiked, so have sales of extended warranties. That didn’t surprise us, but we wanted to understand exactly where and how it was happening, so we dug into sales of Clyde’s fully-integrated extended warranty contracts from before COVID (January 1 to March 15) and after (March 15 to May 31).
COVID has almost doubled extended warranty sales
In looking at sales data over the last five months, we found a meaningful uptick in attachment rates (“AR”), or the percentage of eligible product orders where consumers also purchased an extended warranty, after the COVID crisis began.
Overall, AR almost doubled in the period, with especially notable spikes in the following areas, all of which tend to be higher-priced purchases:
- Appliances, where AR more than doubled
- Electronics, where AR increased 60%
- Furniture, where AR increased 20%
- Jewelry, where AR more than tripled
Psychological research can help us understand what’s driving those increases and why more consumers are choosing to invest in product protection and extended warranties.
What drives consumers to buy differently in times of crisis
As humans, we tend to have a pretty strong optimism bias. We assume bad things won’t happen to us until they do. (That’s why we go outside without always slathering ourselves in sunscreen, even though we know we’re risking skin cancer. Or at least why I do that.)
Living through a very obviously bad thing, like the current coronavirus crisis, forces us to confront the fact that those unpleasant realities can and do happen. As our optimism bias erodes and we are able to more realistically process the risks and possible negative outcomes facing us, we respond by preparing for them. That can include investing in extended warranties, disinfecting our groceries, and yes, putting on sunscreen.
Peter Noel Murray, a consumer psychologist in New York, spoke to CNBC about the way our brains work to process stress. When we’re in situations we can’t control—like, say, a pandemic that has no end in sight—”the mind deals with it through [seeking] control,” he explained. Paul Marsden, a consumer psychologist at the University of the Arts London, noted that changes in purchasing patterns may be driven by several psychological needs, including:
- Autonomy. Feeling in control of our actions becomes even more important during a pandemic that you definitely cannot control. After all, though we can’t stop a virus, we can stock a pantry. Marsden explains that some purchases may be a way for consumers to practice agency and autonomy on a small scale. Extended warranties, in particular, might be a way for buyers to invest in their autonomy, since they know they’ll be covered if something goes wrong.
- Relatedness. Wanting to feel like we’re doing something to help our families and communities can have a direct impact on purchasing. Maybe we can’t protect our loved ones from the threat of a virus, but we can definitely make extended time at home more comfortable with new game consoles and furniture. Product protection could help our need for relatedness even more, allowing us to know that our forward planning will help us look out for our families if issues come up.
- Competence. We want to see ourselves as good people making good decisions—like doing the responsible thing and buying product protection along with an expensive new toy.
Extended warranty options have always given more control and peace of mind to consumers. It’s understandable that buyers are looking for even more of that right now.
What does all this mean for retailers?
Our current reality isn’t likely to change anytime soon, and retailers should be ready for that.
An April 2020 study found that less than 16% of people said they would feel comfortable shopping at a mall in the next three months—and that was before the numbers of new cases in the U.S. rose to over 50,000 a day.
If we look to countries that are months ahead of the States in dealing with the virus, we see that changes to purchasing patterns are probably here to stay. A June 2020 report from the World Economic Forum found that although countries like China are already returning to “normal,” shifts to online purchasing that started during the pandemic’s peak have remained.
E-commerce and increased interest in extended warranties are here to stay. Retailers should be poised to make the most of those changes. Consider streamlining your purchasing process, improving your site’s performance on multiple platforms, and partnering with Clyde to offer extended warranty options and the peace of mind that comes with them.