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Except for an expected near-term dip in CE purchases in the storm-ravaged Gulf Coast, extended warranty providers see limited impact on business in the fourth quarter due to Hurricane Katrina.
Call-center volume in the affected areas is reportedly up, as people return to their homes to assess the damage, but since standard extended service plans (ESPs) do not cover natural disasters — that is left to homeowner's insurance policies — providers can only facilitate the product replacement process and the cancellation of existing ESPs.
“We empathize with our customers and have most of the homeowner's insurance hot lines available to provide to the customer if needed,” Paul Swenson, president of Aon Innovative Solutions, said. “One of the steps we've taken in our call centers is to train our associates to take very good care of customers who have been impacted by the hurricane.”
Jeff Unterreiner, marketing director for Assurant Solutions, said every effort will be made to accommodate cancellations for storm victims. “We will cancel without the need to have the request in writing. Cancellations of retail ESPs are normally handled by the dealer that sold the contract. We will refund directly to the consumer if the dealer's business is gone.”
Aon's Swenson added, “If a customer's product has been destroyed, they are entitled to a prorate refund of their ESP purchase price. We've taken care to ensure prompt refunds for these situations, so customers who have had their lives impacted will receive their money quickly.”
Looking forward, most providers see the inevitable demand for replacement products in the region leading to a sales spike, but no one really knows when that may occur.
“Any increase in consumer CE purchasing will probably depend in large part on how quickly the victims find permanent housing and receive insurance funds,” said Linda Gottschalk, marketing VP at Warranty Corporation of America.
VAC's senior sales VP Bruce Wolfson agreed. “We may well see the buying bubble emerge later rather than sooner in the fourth quarter as people return to their homes, dig out or rebuild, and gradually return to their pre-hurricane lives. The impact will be even larger through the first half of next year, and even beyond.”
But a regional buying bubble will not necessarily translate into significant sales of service plans.
“Consumers might scratch their heads and think more about purchasing product protection plans going forward, but we will likely see normal buying habits prevail over time,” Wolfson said.
Danny Hourigan, service plan division president of NEW Customer Service Companies, concurred. “Those people who tend to buy [ESPs] will probably continue to do so and those who don't see their value are unlikely to be swayed simply because of Hurricane Katrina.”
Hourigan warned that other factors may weigh heavily on sales the rest of the year. “The bigger risk to CE sales in the fourth quarter is the impact that higher gasoline and energy prices will have on consumers' buying patterns. If the recent rise in energy prices causes consumers to slow down discretionary spending, this could impact sales of high-end CE products.”
AIG Warranty's senior VP Matt Frankel sees slightly sunnier skies ahead. “Everybody will look at their spending habits. Gas prices will do that,” he acknowledged, but Frankel thinks that less money in consumers' pockets may lead them to buy more service contracts, “to protect their investments.”
Looking at the industry in general, Frankel predicted strong holiday sales based on falling prices for flat-panel TV, MP3 players and camcorders that “will spur retail to be pretty good vs. past years.”
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.