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here you are, soon-to-be-proud-owner of a new stereo, computer, television,
or washing machine. Just when you think you've made all the required decisions, it's time
for one more. "How about protecting your investment with an extended warranty?" asks the
salesperson. Bad things happen to good people, you know. And you'd hate to have to pay all
that money for repairs when this sweet little contract can give you all the protection you
need.
What's a consumer to do?
"My strong, strong recommendation is that when consumers are offered an extended warranty
they should politely but firmly say 'no thank you,' " says Dr. Dennis Garrett, interim dean
of Marquette University's School of Business Administration, Milwaukee, Wis. "Extended
warranties are very profitable for sellers, and basically surefire losers for consumers."
After all, when you buy an extended warranty, you're buying an insurance policy. You're
betting the product will break down, and the seller is betting it won't. "Consumers are
faced with a window of vulnerability—right after they make a significant purchase,"
says Garrett. He says consumers often experience what's known as buyer's remorse (a.k.a.
postpurchase dissonance), causing them to agonize over making the purchase. "Many companies
train their salespeople to sell extended warranties as a way to reduce those feelings."
But, in effect, consumers simply are buying a very expensive security blanket.
Consumer Reports agrees. In its May 1998 issue it advises against buying an extended
warranty to supplement factory coverage, explaining that the warranties are of great value
to the retailer but of little value to the buyer. According to a 1996 survey the Consumer
Electronics Manufacturers Association in Arlington, Va., conducted, color televisions were
returned for repairs by only 4% of consumers, 7% for VCRs and camcorders, 5% for
cordless phones, and 4% for multimedia computers. These numbers hardly support the fear
factor some extended warranty sellers promote. Plus, experience shows that most breakdowns
occur within the first few weeks of use, when the item still is covered by the
manufacturer's warranty.
Why the big push? "What's happened is that so many companies are part of increasingly
competitive industries," says Garrett. "Profit margins are getting squeezed, so sellers try
to find creative ways to increase profitability without increasing prices. Extended
warranties provide a backdoor way to increase store profits."
And even though about 40% of people buying at electronics and appliance chain stores buy
extended warranties, only 12% to 20% of those buyers ever use them, according to "The
Consumer Bible" (ISBN 1563052741), by Mark Green.
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"Extended warranties
provide a backdoor
way to increase
store profits."
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"Extended warranties
are very profitable
for sellers,
and basically
surefire losers
for consumers." |
Do your homework & shop smart
Following these five suggestions will help you be confident about your purchase.
- Pick reliable brands. Garrett says magazines such as Consumer Reports
routinely rate types and brands of products; besides highlighting features and performance
they also offer data about reliability. Ask family and friends about their experiences;
check to see if they'd buy the same product or brand again. Check out the store's return
policy and service reputation.
- Read the manual. Contrary to popular belief, you should not file
owner's manuals in black holes. If you want to make the most of your purchase, go through
the manual and follow the instructions to test all the features. Do this while the
manufacturer's warranty still is in effect. You don't want to wait two years to find out
that the lock won't engage on your self-cleaning oven, for example. Always follow the
manufacturer's advice on routine maintenance and cleaning to keep your product running
smoothly.
- Think plastic. Some credit cards offer enhanced warranty coverage
with purchases, often doubling the manufacturer's warranty, up to one year. Read the terms
of your credit card agreement to see what's covered and what's not. If you have any
questions, call the credit card issuer.
- Keep good records. Once you've read your owner's manual, file it in
a safe, accessible place. Staple or clip your receipt (store and credit card) to the owner's
manual for safekeeping. On the front of the manual write the warranty expiration date and,
if applicable, the length of extra coverage your credit card provides.
- Be an assertive complainer. Whenever a product falters or breaks, go
back to the store armed with your receipt and your purchase. If it's under warranty, you'll
qualify for repair. If you're dealing with small electronic items such as walk-about stereos
and CD players, you may be handed a new product, with no wait for repairs. "Even if your
problem occurs shortly outside the product's warranty period and you can make the case that
you're a loyal customer, the seller will often try to do the right thing for you," Garrett
says. In any case, promptly report any problem—don't sit on it for weeks and then miss
the warranty deadline.
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If you buy, be aware
If you want to buy a service contract, make sure it fits your needs,
say the National Electronic Service Dealers Association in Fort Worth, Texas.
Don't be misled by the contract. Compare extended service coverage with the terms of the
original warranty. Before you buy, get answers to these questions:
- What does the warranty cover? Read the
large and small print carefully to find out what's covered and what's excluded. Does the
policy cover parts? Labor? Are you paying to duplicate any of the manufacturer's warranty?
- What companies will be able to do the repairs and where are they located? Will you have a
choice? And if you must ship the product to a repair facility, who pays?
- Is the contract insured? In full, with no deductibles? Is the name of the insurance company
shown on the contract?
- Who pays the bill? You don't want to buy a policy where you end up paying the repair bill,
then have to submit it to the insurance company for reimbursement.
- How much does the extended warranty cost? How does the cost compare to the price of the
product you're buying? Green suggests that the cost of the warranty should not exceed 10%
to 15% of the total value of the product.
- Who stands behind the warranty? If you buy your extended warranty directly from a
well-established manufacturer or retailer, chances are it will be around to provide service
if you need it. However, if you buy a contract from a third-party company, you might find
yourself fighting for repairs or dealing with a company that goes out of business if
claims start piling up.
The bottom line: An extended warranty offers expensive insurance against the remote
possibility both that a repair will be required and that it will be extremely costly, states
Consumer Reports. Consider skipping the extended warranty and instead put the money
you save into a repair fund savings account at your credit union.
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"Consumers offered
an extended warranty
should politely
but firmly say
'no thank you.' " |
