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Soaring raw materials and energy costs have put pressure on major appliance manufacturers to find financial relief through price increases and cost containment.
Among the latter, a key route taken by majap vendors to lower overhead has been to reduce the length of coverage of their manufacturer warranties. Indeed, over the past year the industry has generally trimmed the traditional five-year term for sealed systems back to one year in key categories including refrigeration and laundry.
The policy change should have, in theory, sparked increased sales of extended service plans to consumers who have made major investments in today's pricier $1,000 washers and side-by-sides. Yet extended service plan providers have yet to see a concomitant increase in attachment rates, which suggests that dealers are leaving potential profits on the table.
TWICE asked the industry's leading warranty companies why sales of extended white goods warranties aren't higher, and what retailers can do to help their customers compensate for diminished manufacturer coverage.
Frank Trigo, executive VP, VAC Service Corp.: We really can't attribute a spike in sales due to the OEM warranty reductions that have recently taken place in the industry. Our sense is that most consumers really haven't realized that the warranty period on major components has been shortened.
Our retailers work to educate consumers about this in order to communicate the additional benefit of purchasing the extended warranty. Some of our clients have begun to offer service contracts on major components only. These plans cover the cost of major parts such as compressors or magnetrons for a period of 5 to 10 years from the date of purchase. These plans make a nice adjunct to the original manufacturers warranty for consumers who either decline the comprehensive extended service plan or look to extend the service plan for additional coverage on their product's major components.
Mike Frosch, president, Aon Warranty Group North America, Non-Automotive: We haven't seen a substantial change in consumer behavior as a result of major component manufacturer warranty reductions. Nor have we seen retailers pointing to the reduction in these sealed system warranties from five years to one year as it begs questions regarding reliability on a brand by brand comparative at the consumer level.
Our expectation is that consumer attitudes will change over time as cumulative impacts drive migration to extended warranties as a requirement for major appliances. At the same time, our focus is to configure new product sets and features that provide increased value and coverage to the consumer to protect from these risks of failure.
Matt Frankel, president, AIG Warranty: Theory would suggest that attachment rates would spike on major appliances in reaction to shorter-term manufacturer warranties, but I haven't seen it happen. The category traditionally has high attachment rates anyway because they're big-ticket items and no one wants to do without fresh food and clean clothes.
Keith Meier, senior VP/general manager, extended services, Assurant Solutions: We have experienced an increase in attachment rates for appliance extended service contracts over the past year. In addition to reduced manufacturer warranties, many of our clients [say] the rise in sales is a direct result of the implementation of our Total Program Management system that empowers retail sales associates to be more capable of driving service programs.
Danny Hourigan, president, NEW Service Plan Division: As appliance manufacturers have shortened their warranties, we have seen retailers using this as an added tool in selling the warranty. Consumers understand that a shortened manufacturer warranty provides one more reason to protect their major purchase with a service plan.
Sean Hicks, president, Warrantech Consumer Product Services: We have not seen a big jump in white goods business. The business has been growing slightly, more from client focus than the warranty change.
Bruce Saulnier, president, AMT Service Corp.: We have witnessed no spikes in business as the result of any segment reducing the length of appliance manufacturer warranties. Rather, we've seen a steady increase in business due to the importance of extended service plans (ESPs) in general, and their associated positive impact on customer satisfaction, increased product sales and enhanced revenues and profitability from the ESPs.
Jeff Oldenburg, VP marketing and business development, Service Net: We haven't really seen any change; our appliance business has overall been very steady, so it would be hard to pinpoint a particular reason [why attachment rates haven't spiked]. I think we saw similar moves on the CE side years ago.
Doug Tudor, President, Warranty Corp. of America (WaCA): Many consumers are not aware of the warranty terms, so a well-trained sales force can make a difference in educating buyers about the benefits of extended service plans. WaCA provides robust training for our client's sales associates on topics including how to sell the products as well as how to sell extended service plans.