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Digital Technologies Spur Extended Warranty Sales

The surge in sales of new digital products is boosting sales of service contracts and extended warranties, according to a handful of third-party service administrators.

“When new products are introduced, consumers tend to buy [warranties],” said Tony Nader, president of National Electronics Warranty (N.E.W.).

HDTV, DVD and digital camcorders are some of the recent warranty-growth areas that sources reported. Some warranty providers suggested the mysteries and complexities surrounding new digital technologies are at the root of why consumers tend to buy service contracts with these products.

Evan Press, marketing VP at online service provider, explained that warranty sales are high for HDTV because “it’s a very complex product that once you set up, you don’t want to move. The more complex the products get.the longer people want to keep them.”

To cater to the booming home theater market, Nader said, his company has introduced “a plan that can be sold for high-end, custom home systems” and is priced according to each system’s value.

On the other hand, many providers said TiVo, home satellite and Palm products have not reached their stride in terms of warranty sales, and Nader said “innovative approaches are going to be important” to pitch contracts for these categories in the future.

Cellphones, MiniDisc players and appliances were named by several service providers as other areas with low warranty sales.

In contrast, computer printers, notebooks and desktop computers continue to have increasingly high warranty-attachment rates. Some third-party administrators pointed to their toll-free or online help desks that come along with service contracts as the reason for consumers’ likelihood to purchase warranties with these SOHO products.

Kevin Rupkey, president of Federal Warranty Service, said more than 80 percent of the calls coming into his company’s PC help desk result in services other than repairs. This, he says, saves his retailer clients money and consumers unneeded hassles.

Across the board in mid-February, warranty sales have been up, and many third-party administrators expect them to continue rising.

“Our business has grown dramatically over the last year,” Rupkey said. He attributed this growth to the company’s recent International Standards Certification, which he said entices retail clients and consumers alike because it guarantees a consistently high level of service.

“We saw absolutely massive increases at the end of last year,” said Warranty-Now CEO Adrian Vanzyl, adding that sales doubled every week for the six weeks before Christmas, sell-through rates were in the double-digits, and all told, $10 in service contracts was sold for every $100 of product purchased.

So far, the first quarter is also looking positive. N.E.W.’s Nader said, “Obviously, the fourth quarter overall was slow in retail in general, but we’re seeing some recovery in the first quarter.”

While each third-party service administrator listed special features it offers its customers-including toll-free help desks, replacement contracts for products under $200 and online repair tracking-all emphasized the importance of good, reliable service.

“Service levels in America continue to deteriorate,” Rupkey said, pointing to airlines as an example. “We’ve found that what we need to focus providing quality service consistently. People will pay more for a higher level of service, and we’ve proven that.”

The biggest challenge, said here2fix’s Press, “is to earn the customer’s respect, and that’s largely done through offering quality service.”

Nader said he thought the biggest challenge facing the industry was “to continue to find ways to offer innovative product in the face of falling retail prices in certain categories.”

Most of the third-party administrators expect a strong 2001, despite the unpredictable market thus far.

“February is starting off a little slow,” said Matt Frankel, sales VP at American International Group, “and I think a lot of it has to do with how the markets are doing. But I think the consumer outlook is getting rosier, and that should help us for the remainder of the year.”