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In this second and final installment of TWICE's virtual warranty roundtable, extended service providers address the impact of commodity pricing and non-commissioned sales staffs on attachment rates.
Circuit City chairman/CEO Alan McCollough touched on the subject during a recent conference call, after the chain, which last February moved to a non-commissioned sales structure, reported a slight second quarter downturn in service contract sales. The primary cause, the company said, was the drop in average retails, which results in consumers purchasing warranty contracts on fewer products.
"Attachment rates are driven by the average price point of the product, where the products are in their technological lifecycles, and how much the consumer is willing to pay to insure them," McCollough told analysts. "We monitor [attachment rates] by the price of the product and the contract, and look for the sweet spot, but we don't try to predict increases in warranty penetration."
What do the industry's leading extended service contract providers (ESPs) think? Read on. —Alan Wolf
TWICE:Most CE products are now sold by non-commissioned sales teams, and a growing percentage are purchased online. How has this shift affected attachment rates?
Frank Ferrara, VP/marketing, extended service contract development, Assurant Group Consumer Services: There has not been a significant change in attachment rates either way as a result of commissioned or non-commissioned sales forces. Most non-commissioned sales forces utilize a team atmosphere that is able to provide strength in knowledge and execution. The commissioned forces continue to provide excellent service to the consumer. Consumers tend to really begin to ask questions and protect their investments with strong, new technologies, especially when used together, or converged, as in home networking.
Danny Hourigan, NEW service plan division: As retailers move from a commissioned sales environment to a salaried sales force, they may initially see some erosion in attachment rates. However, any decline in service plan sales can be overcome. We work with all of our clients — regardless of their compensation structure — to operationalize the sale of service plans. The key is to offer a service plan to every customer, every time. A service plan program can be successful, regardless of the compensation structure of the sales associate, as long as every customer is offered the opportunity to buy a plan.
Kevin Ruppelt, general manager/warranty management, GE Consumer Products: We've seen minimal impact. We find when clear expectations are established, focused training is conducted, employee recognition programs are implemented and visibility to performance metrics are provided, attachment rates will grow.
Matt Frankel, VP, AIG Warranty: A lot of our business is with retailers with non-commissioned sales teams, including Best Buy and Kmart. You can produce results by making sales of service contracts an integral part of a salesperson's job. You have to hire right, train well, set expectations, and offer replacement plans at the cashier level. The transition to non-commissioned sales teams may initially send up a red flag, and there may be an immediate downturn in attachment rates, but they will come up again.
TWICE:Similarly, how has commodity pricing on items like DVD players and VCRs impacted attachment rates?
Glen Hammer, chairman, Warranty Corp. of America (WaCA): As the price of products drop, so does the price of a service contract. We do millions of contracts on low-price products like phones, and they all add up. We wouldn't bother repairing a $40 DVD player, but for a few dollars, we'll replace it. For online sales, we recently acquired Here2fix, which addresses the e-commerce and catalog aspects of the business. Despite the tech bust, Internet sales continue to grow.
Jeff Oldenburg, VP/marketing and business development, Service Net: While commodity products such as VCRs, small TVs and DVD players usually don't attach with a standard break/fix contract, they are prime candidates for replacement plans.
Conversely, the merging of technology and CE product lines such as plasma TVs, LCD and the like continues to drive opportunities for increased attachment. The new lower retail price points these products now hit also means these products can be sold to a mass audience. Yet the product is still expensive enough that the consumer feels the need for the extra protection a service plan provides.
For example, plasma TVs were always an ideal product to cover with an extended service plan (ESP), but with the TV's price tag over $10,000 very few customers could afford the technology. With plasma now selling as low as $3,000, it appeals more to the mass market — and $3,000 is still a big enough investment to make an ESP appealing for the average consumer.
Jim Tucker, president, VAC Service Corp.: We offer replacement programs for inexpensive products, those $200 and under.
Paul Swenson, president, Aon Innovative Solutions: We continue to see product pricing changes that require constant re-evaluation of extended service plan fulfillment methods, pricing, and so forth. Examples are VCRs and low-end DVD players that are viewed as commodities and require creative replacement plans with customer friendly processing and good salvage recovery methods. At the other end of the spectrum is plasma technology, but as the price drops we need to continually monitor loss costs so we can keep our partners competitive in the marketplace.
Matt Frankel: We absolutely care about low-end products. We never want to forfeit a sale of a contract because the price of the product has gone down. So for products priced $200 or less, we offer replacement programs, which is the single fastest growing segment of the business. Sure, the ticket is less, but the number of contracts is huge.
This TWICE webinar, hosted by senior editor Alan Wolf, will take a look at what may be the hottest CE products at retail that will be sold during the all-important fourth quarter. Top technologies, market strategies and industry trends will be discussed with industry analysts and executives.