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Warranty Contracts Alone Don’t Cut It Anymore

Many in the warranty business say that providing extended repair contracts just doesn’t cut it anymore.

Replacement contracts are superceding the traditional repair contracts for many lower-priced consumer electronics products that consumers view as “throwaway” items, sources said.

“Because pricing of VCRs has gone down under $100, we’ve developed a replacement contract to take the place of the repair contract,” said Matt Frankel, president of American International Group (AIG). Such replacement contracts can be purchased for most CE products that retail for less than $200 and are shippable, he said.

Many in the warranty business admit that the replacement approach is a way to prove to consumers they are getting something for their money and to disprove the business’ onetime unfavorable reputation.

Warrantech’s new Xchange Card is another example of this trend. Introduced this year, the program allows consumers to buy replacement coverage for products priced $50 to $500.

“Since the customer already thinks the $500 product is disposable, we’re saying, `We agree, let us be the disposer,’ ” said Kharl Mena, new business development VP at Warrantech Consumer Product Services. The replacement contracts are purchased for the price of the product and are good for up to one year after the expiration of the shortest part of the manufacturer’s warranty.

“It provides a good value proposition for the consumer. It allows us to hit a better price point, and it allows the retailer to hit a better price point,” said GE Warranty Management general manager Dave McCalpin of his company’s new replacement contracts, which were introduced last fall.

A spokesperson for VAC Service Corp., described his company’s “A Peach for a Lemon” service as one way it has evolved and included product replacements in its contracts. After a product breaks and is repaired three times, the warranty provider replaces the product if it breaks again.

Replacements are not the only way this sector of the industry has changed in recent months. Many warranty companies have boosted the services they supply to retailers and e-tailers, who then offer them to consumers.

Such services include online product registration, online product manuals, online repair scheduling, and PC help desks accessed via the Web or toll-free phone calls. Many of these added options are a result of increased e-commerce — reflected in the increase of traditional warranty providers adding Internet-based offshoots, as well as some Internet-only warranty providers, such as revbox, joining the game.

“Our view is that to come to the retailer with just extended warranties is not enough,” said revbox vice chairman Sergio Mazza. “We want to offer a whole suite of services that will make the consumer come back to the site again and again.”

Kevin Rupkey, president of Federal Warranty Service, the parent company of, seconded that idea.

“Our e-commerce solution [] provides the consumer with an array of value-added services that add great benefit to the warranty purchase,” Rupkey said. “For example, our PC warranty purchasers get unlimited help desk assistance seven days a week, 24 hours a day.”

National Electronics Warranty has also gone “beyond basic breakdown service,” said president Tony Nader. The company has added maintenance programs, such as head cleanings for VCRs, spec checks for TVs and food-loss protection for refrigerators. And through its online service, which is affiliated with brick & mortar stores that have websites as well as pure-play e-tailers, N.E.W. offers online troubleshooting help and product-specific information.

WarrantyNow and are pure-play warranty providers working to simplify the whole process — from purchase to repair. Unlike warranties sold at the point of purchase at conventional retail outlets, online warranty services don’t require the customer to fill out any forms. When they get to the checkout page of an associated e-tailer, there is a button they can push to find out about and purchase warranties. (See TWICE, March 6, p. 12.)

Gidon Wallis, founder and CEO of, said customer service, troubleshooting and repair requests are all done by going to the company’s website.

In the case of a needed repair, sends a UPS truck with an appropriately sized box, and the broken product is then sent to one of the company’s six regional repair stations.

“Because we’re sending by UPS, that makes it easier. You don’t leave your front door,” Wallis said. The customer can then track the product’s status as it is serviced through the company’s website.

All warranty providers agree on one thing: 2000 has been an excellent year for warranty sales. Consumer electronics retailers have benefited from the strong economy, and more product sales means more warranty sales, sources said.

“This is going to be a record year for us,” said N.E.W.’s Nader.

A spokesperson for VAC said the warranty business is profiting from the positive sales trends in consumer electronics overall. “The price erosion in consumer electronics leads to higher unit sales, and high unit sales leads to more warranty sales.”

Is the outlook for future warranty sales just as positive? Most of the warranty companies interviewed agreed that their sector of the CE industry would continue to see positive gains, as long as they continued to focus on customer satisfaction.

AIG’s Frankel echoed this idea, but said he was keeping his eye on any influences from the economy.

“Now that Mr. Greenspan has raised the interest rate again . I do expect there to be a little bit of a slowdown. I still expect double-digit growth year over year, but not as strong as in the last six months,” Frankel said.