Extended Warranties Ride The Digital Wave

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Life is good for third-party service administrators.

The industry, having cleaned up its collective act after past practices had tarnished its image, now finds itself perfectly poised to take part in the nation's continuing prosperity.

Indeed, the timing couldn't be better. Consumers, flush with disposable income and enticed by a new generation of compelling digital products, are flooding store floors to eagerly snap up the latest electronics gadgetry. In turn, these high-technology, high-ticket toys are generating renewed interest in the products and services offered by the extended warranty providers, who are scrambling to develop new programs to meet the growing demand.

"Any time new high-end technology becomes available in the marketplace, we experience a surge in the demand for our products and services," said Rich Turchon, senior VP of sales for Warrantech. "In working with our dealer base, we have seen an upswing in sales of certain product categories such as DVD players and DSS. This, coupled with HDTV and plasma TV and additional advertising, has caused consumers to return to their local consumer electronics retailers ready to purchase this new technology."

Dave McCalpin, general manager of GE Warranty Management, agreed that recently introduced technologies can seem daunting to shoppers, sending them into the service providers' camp. "Historically, as newer technology areas emerge such as DVD and home theater, consumers seek the knowledge and peace of mind that our products bring," he said.

In fact, the "explosion of new digital technology" provides a perfect example of how extended service plans provide value to consumers, said Fred Schaufeld, CEO of National Electronics Warranty (N.E.W.). "Early users of new technology are assured of receiving assistance when and if they have problems with their new technology," he explained. "Usually the price of an item is more expensive in the beginning of the product life cycle, therefore the financial risk when a repair is needed is greater."

For that reason, noted Matt Frankel, VP sales at AIG Warranty Group, the "penetration rate increases on big-ticket items. The consumer wants to make sure his investment is running as it should, and our job is to insure that these products keep working to the customer's satisfaction."

At the same time, service providers must remain well-versed in the latest technologies in order to tap into the digital revolution, Frankel said. "Although a customer will spend more on a contract for a $3,000 product than for a $300 product, we have hurdles to jump to make sure we can service these items. We have to keep up with the industry and the technology."

Michael Frosch, senior VP of sales and marketing for Aon Innovative Solutions, agreed and said, "We have to be in front of the technology because the consumer and our clients are looking to us for solutions."

Meanwhile, amid the glitz and glamour of the high-end digital barrage, extended service contract providers are still doing a healthy business in the price-compressed PC arena. As GE's McCalpin noted, "The PC business continues to do very well for us because the volume is strong enough to offset the dwindling price points."

And while Jim Tucker, president of VAC Service, acknowledged that "it's getting tougher and tougher to make any money in the computer category," it's all gravy to Federal Warranty Service, which is just now stepping up to the plate.

"The devaluation of computers does lower the transaction," conceded Kevin Rupkey, Federal's VP of sales and marketing, "but we're new to the category, so it's all plus-action. It's a very exciting time for us."

To support its PC stance, the company recently added a new computer help desk to its Tampa, Fla., offices, and it is offering customers, and ultimately end users, such value-added services as PC help desk support that's bundled with extended service contracts.

"We spent the past year redefining who we are and what we want to be in the marketplace," Rupkey said. "We've made investments in technology, opened the PC help desk - which is our third call center - and want to offer world-class service to differentiate ourselves from competitors. We've aligned ourselves with the highest-caliber service providers, have certified A-plus technicians on the phones, and try to have those phones answered within 20 seconds."

Similarly, other third-party providers are also upping the ante by introducing new service programs or by enhancing their in-store efforts in order to ensure their share of the burgeoning electronics pie. As N.E.W.'s Schaufeld noted, "We work closely with our clients to develop customized programs aimed at improving not only extended service plan sales, but also the quality of the customer's experience in the store. These programs include turn-key collateral and point-of-sale materials, training programs, results evaluation and employee surveys."

Beyond developing new products to serve emerging technologies, improving its sales training and point-of-sale materials and raising its quality of service scores, GE is also focused on leveraging its well-known name. "More and more retailers are working with us on co-branding," said McCalpin, "which marries the consumer's affinity for a particular retailer with the peace and security that our brand image brings."

Other companies claim an advantage in providing a wide range of services in-house, rather than farming out sections of their business.

"Everything is right here," said VAC's Tucker, "technical support, help desk, telemarketing. The consumer we deal with is not our customer, he's our customer's customer, and we have to handle him properly."

According to Aon's Frosch, his company - an amalgam of service contract, call service and direct marketing firms - was pieced together specifically to provide "all services under one umbrella. The advantage for us is that our insurance underwriter is also a division of Aon, and therefore there's a relationship between the administrator and the underwriter."

"In this day and age," said Frosch, "when technology is driving more technical support and interaction with the consumer, who is going to answer the phone if the administrator isn't there?"

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