NARDA Counters Consumer Reports’ Warranty Warning
by Alan Wolf -- TWICE, 11/27/2006
Glenview, Ill. — The North American Retail Dealers Association (NARDA) has come out swinging against a public education campaign by Consumer Reports that advises shoppers against buying extended service plans.
Consumer Reports kicked off its campaign last month with a full-page advertisement in USA Today and an e-mail blast to 825,000 subscribers warning that extended warranties on CE and majap products have become big business for retailers, but a waste of money for consumers.
The non-profit consumer advocacy magazine noted that dealer margins on service plans can reach 50 percent or better, and that products seldom break within the typical extended warranty window of three years. In the event that they do repairs on consumer electronics and major appliances often cost about the same as the price of the warranty plan, the magazine reported.
The publication estimates that consumers will spend about $1.6 billion on extended warranties for brown and white goods this holiday season. Almost all of it — with the exception of coverage for rear-projection microdisplay TVs (three times more likely to need repairs than other types of TVs, the magazine said) and Apple computers (due to a paltry 90 days of tech support) — “will be money down the drain.”
While Consumer Reports and its parent company, Consumers Union, have long advised shoppers to steer clear of service plans in print and online, the campaign represents the first time that the organization has mounted such a widespread public education effort, prompting NARDA to take action. Finding the campaign “misleading, a disservice to consumers and a threat to NARDA members who sell these programs,” the educational trade association has provided members with a fact sheet and action plan developed by warranty expert Gary Chaves, and has challenged Consumer Reports directly in a letter to editor-in-chief Margot Slade.
“We think that Consumer Reports slanted the data they collected and did not present a balanced view,” said NARDA president/CEO Tom Drake. “We are not going to let our members be taken to the woodshed for offering their customers the opportunity for protection. Extended warranties are not for everyone, and certainly retailers make money on selling them. However, a simple fact of life is that everything eventually breaks, whether it’s the human body, a refrigerator or a television. Extended warranties offer consumers the opportunity to have piece of mind as well as save time and money.”
Chaves recommends that dealers familiarize their sales staffs with the Consumers Union report to better understand customer qualms, and then offer additional information about their extended warranties including:
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The convenience of the program;
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Value added services such as free technical support, unlimited service calls and money-back-if-not-used incentives;
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The costs of unexpected repairs due to the complexity of today’s products;
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Reduced manufacturer warranty terms; and
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Consumer Reports’ own repair chart indicating that majaps have a one-in-five chance of requiring service or repair.
“Regardless of this anti-warranty campaign, you could actually increase your extended warranty sales by simply insuring that every customer has the option to buy and by training your sales staff on how to effectively present the extended warranty to your customers,” Chaves advised.
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The problem with the 'blanket' statements that the folks at CU made regarding extended warranties is that they don't allow for or consider the frequency-of-use or lack of repair history, especially on newer technologies. For established products, such as CRT televisions or non-powered speakers, it only makes sense if the customer feels more confident in dealing with any 'what-ifs'. It is absolutely their choice and shouldn't be shoved down anybody's throat. The company I work for offers warranties like most appliance and consumer electronics stores, but the manner of presentation is low-key, no pressure, basically making the customer aware of their choices. We don't use scare tactics and we don't lie; there's no profit in that and our customers give us lots of referrals as a result. Our warranties are much more reasonably priced than most of our competition and we are not required to meet any quotas, as everyone is on salary, not commission. It is the conduct of salespeople who are pressured by their management and companies who don't follow through with good customer service that causes organizations like CU to devalue warranties as not being a smart buy. It is not any salesperson's job to make decisions or withhold information from a client. It is our job to honestly advise and educate, and, when asked, give our opinion. The buyer makes the call.
Dan Lieberman - 2007-13-1 22:03:00 EST -
I would show a customer our "dead area", to show it's not always one brand or type that goes out. And also point out that CR's data is not statistically valid. Make a case for the price, and my own personal experiences with service warranties made me successful in sales.
Mark Newton-John - 2006-2-12 12:01:00 EST
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