Article Highlights

- Who can offer product warranties
- The difference between warranties and product protection
- What Product Protection Includes
- Repair vs Replace Contracts

Great retailers need great customers. Thankfully for those doing the selling, there are as many ways to meet the needs of five-star prospects as there are to identify them. One way to find strong prospects is to turn areas of friction into engagement opportunities, or touchpoints. These touchpoints can satisfy a customer’s request and delight them while doing so. Meanwhile, retailers can use touchpoints to gauge a consumer’s level of interest.The more positive touchpoints that a prospect has, the more likely they are to become a great customer.

With 55% of consumers willing to pay more for a better shopping experience, product protection plans can be strong touchpoints.

Warranties aren’t just for manufacturers

In the most basic sense, warranties are assumptions of trust that customers make in a product. Warranties work by repaying that trust with a service contract. The service contract is a binding agreement that guarantees replacement or services within the limits of the contract’s terms.

So yes, retailers can offer warranties too. In order to remove some confusion, this article will refer to retailer-offered warranties as product protection.

Product protection has been around for years. However, access has traditionally been limited to all but the largest of retailers because of the investment it takes to get started and the potential insurance risk created by smaller product pools.

The beginnings of InsurTech has been a catalyst to the insurance industry. Digital solutions have allowed insurance companies to become more progressive in how they do business and who they do business with. In turn, product protection plans have become a reliable advantage for all retailers - startup and enterprise alike.

Warranties versus product protection

The first step to understanding warranties is to move past the jargon. Product Insurance, Warranty, Guarantee, Extended Warranty, Product Protection and Service Contract all refer to similar, if not identical opportunities. When down to it, there are just two basic categories of warranty; a manufacturer’s warranty and product protection.

Manufacturer’s warranty

A manufacturer’s warranty is a legal contract that binds the manufacturer to providing repair or replace services. (We’ll get to repair versus replace in the next section.) Manufacturers typically have two great reasons to offer warranties:

  • Limit liability, and
  • Instill product confidence

There are two types of manufacturer’s warranty:

  • Full warranties meet the minimum standards specified for comprehensive warranties as set by federal law. Full warranties will require the manufacturer to either repair or replace the item if something unfortunate happens.
  • Limited warranties do not meet the minimum requirements of a federal comprehensive warranty. This limitation means that these warranties will specify the circumstances under which the manufacturer will repair or replace an item. Most instances are limited to a certain type or malfunction or will exclude damages that are withstood during particular activities. For instance, water damage on a cell phone may not be covered under a limited warranty.

Product Protection

Product Protection is a distinction made between a manufacturer’s warranty, and a service contract purchased at the point of sale in the form of a product protection plan. These plans are backed by the retailer’s insurance partner. As an umbrella term, product protection plans can include various types of service contracts.
The intent of product protection is similar to those of manufacturer's warranties. Product Protection Plans aim to improve:

  • Brand Trust
  • Customer Experience
  • Sales Revenue and Margin opportunity

One difference between guarantees provided by a manufacturer and those made by a retailer is liability. By offering limited warranties, manufacturers are able to limit their liability against particular types of failure. Outside of merchantability - laws that require new products to be in working condition when received - retailers don’t have the same liability burden. When retailers provide product protection, they are going above and beyond the parameters set in the manufacturer’s warranty.

Unpacking Product Protection

The service contracts that underpin product protection plans are built on a few core distinctions. These choices include repair or replace, plan duration, and simple versus Accidental Damage from Handling (ADH) protection plans. Here is what you need to know about each.

Repair or Replace

To repair, or to replace; that mostly depends on product cost. Many of us have had patches sewn into jeans, less for aesthetics and more for the fact that sewing for free is cheaper than buying a new pair of jeans. But, this is more common during childhood than when we’re adults. As adults we tend not to have a relative nearby who can stitch our wares away. The scarcity of on-hand seamstress means we’re reliant on the patch-sewing labor market and that’s a lot more expensive than free. In fact, after a bit of wear, tear and depreciation, the patch-sewers are pricier than those jeans are worth.

Replace contracts work well with everyday items that may be relatively low in price. Most cell phone warranties will replace a damaged cell phone instead of trying to repair the damage.

Meanwhile, repair contracts are better fit to those items whose worth, either intrinsically or in dollars and cents, is greater than the cost of labor. For example, a Steinway piano may be one item worth repairing.

Plan Duration

A common reason for purchasing product protection is to extend the benefits of a warranty beyond the manufacturer’s warranty period. This is why protection plans are commonly referred to as extended warranties. With a partner like Clyde, customers have the option to choose the protection plan duration. At Clyde, duration options can range from one, two, three or five years of service for higher ticket products.

Simple Product Protection

Product Protection in its simplest form requires some explaining. These plans do not cover that magical time between product purchase and receipt. Life happens, items break. We laugh at these worst case scenarios when Mayhem strikes between our favorite television shows. But, things do happen and, in the real world, they’re no laughing matter. Simple product protection works well if the item being insured is covered by a manufacturer warranty, because the manufacturer will cover merchantability. So the manufacturer is responsible for ensuring that new items perform as new items should when delivered. In this case, adding a protection plan will extend the coverage duration and may even expand coverage options, giving the customer greater peace of mind.  

ADH Product Protection

Accidental Damage from Handling (ADH) Product Protection plans also extend the duration of coverage beyond the manufacturer’s warranty. Unlike simple protection plans, ADH plans begin at the time of purchase. The added benefit is in the name, any accidents from damage or handling are covered if the plan was purchased before that damage happened. Matching the coverage start date with the time of plan purchase means that merchantability is insured, which further reduces the retailer’s liability.

For when that order is counted on. And the customer’s trust is on the line. ADH protection plans are the surest way to meet demands. Providing for merchantability makes this the best fit for offering product protection on items that do not come with a manufacturer warranty.

What to expect

More than ever consumers are looking for markers of trust, in both brands and in the products they sell. 66% of US consumers are looking for greater transparency from retailers. There is a clear gap between what the industry is providing and what customers are yearning for. According to a Statista report, 75% of retail shoppers will abandon their carts. Offering product protection that clearly sets customer expectations is one way to inform and nurture them past that final barrier to purchase.

Customers are able to choose what they pay based on the duration of coverage they want covered. For example, one year of protection will be cheaper than three years of the same protection. As an added bonus, coverage offers the potential of added revenue if and when the product is damaged and needs service.