Warranties: A Shopping Cart Disaster
By Jennifer Kraft

From Dealerscope

July 7, 2000
It was once believed that selling warranties was equivalent to the age-old question, "Do you want fries with that?" Soon, though, extended service providers and retailers learned that a warranty sale was better served when sold as a feature of the product, the extra value meal of CE, if you will. Fries no longer merely complemented the Big Mac. Instead, they were integrated into the entire Big Mac purchase.

Not surprisingly, then, the same holds true for e-commerce. Because the Internet creates a more passive sales environment, with the consumer choosing just how much information he receives, the "Do you want fries with that?" or the afterthought sale of warranties just isn't cutting it. And those in the extended service contract industry all admit that sales of warranties on the Internet are lagging, with some estimating that on-line warranty attachment rates are as low as five percent.

"At this point, the jury is still out on really how affective the Internet will be on selling service contracts," said Scott Kranzberg, executive vice president, Aon Innovative Solutions.

"Sales of extended service contracts on-line will always be lower [than in traditional retail channels]," said Kharl Mena, vice president of new business development for Warrantech consumer product services. "You have to have someone explaining the benefits. People don't shop for service contracts."

Kranzberg agreed, "Warranties require explanation. You need to have a person with credibility and authority to recommend them."

Some also believe that the characteristics of e-commerce shoppers also contribute to the low on-line warranty sales.

"People on the Web are early adapters of new technology, and they're basically buying product and getting off [line]," explained Matt Frankel, vice president of sales, AIG Warranty. "We, as service providers, along with retailers, aren't getting the point across via the Internet that service contracts or warranties are a value-added product they should spend their money on."

Mena agreed. "There are two reasons why someone shops on the Internet," he said. "One is convenience, and the second is price. And many times, price outweighs the convenience, which is why there are so many sites that do price comparisons. Therefore, a service plan must be priced right, and it must have some perceived value."

He continued, "Extended service plans are basically air and concept�and it's difficult, but not impossible, to sell a concept on the Web."

To answer this tangibility problem in both on-line and in brick-n-mortar channels, Warrantech introduced its Exchange Card program. According to Mena, this provides a brand for replacement plans and covers CE products of up to $500 retail value. Consumers receive an exchange card, which looks much like a phone calling card, and get a one-time replacement for the purchased product. The program kicks in after the shortest period of the manufacturer's warranty expires, Mena said.

Gidon Wallis, founder and CEO of Here2fix.com, a new on-line extended service provider offering troubleshooting, warranties and repair and backed by financial mongol I-Group HotBank, a SOFTBANK affiliate, said that warranties aren't being sold on-line largely because they're not being sold correctly.

Wallis said that buying warranties is sometimes too difficult and time consuming, and consumers would rather not buy a warranty at all than fill out yet-another form. To answer this, Here2fix.com fully integrates into its customers' sites. That way, the company has all the consumer's information and can apply that directly to the warranty purchasing page.

"A customer chooses a warranty and�it's one click to register," he said.

The "one-click" technique is the focus of Here2fix.com's business plan.

"We're a company who grew out of convenience. It's one click service. Simple," he said.

Aon's Kranzberg said his company concentrates on using the Internet to make using all warranties easier, in addition to selling them on-line. Aon offers consumers the ability to process claims or receive updates.

Frank Pournelle, director of marketing for WarrantyNow.com, said his company has found it effective to integrate a page into the Web site showing a customized service plan option.

He also contended that there must be a balance between hitting customers with a warranty immediately and overwhelming them. "If you push too hard, people will get turned off from buying the product."

According to Pournelle, selling warranties on-line is of major importance to an e-tailer's bottom line.

"On the Internet, people are shopping on price. E-tailers are getting a 2 to 4 percent gross margin on the sale of a product," he said, explaining that price wars among e-tailers force them to offer product at rock-bottom prices. "But with a service plan, they see as much as 75 [percent]."

Tony Nader, president and COO, NEW, said his company works closely with its e-tail customers to assist them in selling extended services on-line. He said a clear demonstration of the product is important.

"You must make sure the process is operational," he explained. "It must be very clear and very obvious how to purchase a warranty."

GE Warranty Management General Manager Dave McCalpin said brand awareness is also another factor in the marketing of extended service contracts.

"It's important to have credibility with consumers so they're confident that what you're selling, someone stands behind that," he said, adding, "it's helpful to have the GE brand.

And branding is exactly what Maytag Corp. is hoping to accomplish with its newest partnership.

The company recently announced an agreement with Service Net Inc, a Louisville, Ky.-based company that creates, markets and administers fully-insured warranties and service contracts for various types of PC and CE products. Service Net will manage Maytag's extended service plans. The warranty will carry the Maytag brand and will apply coverage to Maytag appliances and other manufacturers' consumer electronic and appliance product. The warranty will be sold via retail outlets.

And although most admit that there is a lot to be learned when it comes to properly marketing a warranty on-line, their outlooks were positive and hopeful that extended service contracts would find their own niche, especially considering the very nature of e-commerce. "As sales of CE increase on the Web, it will happed for service contracts, as well," Mena said.

NEW's Nader added, "There's a lack of direct contact [between the consumer and e-tailer]. A customer may not know who the e-tailer is, what to do with the product when it breaks or where the e-tailer's repair location is, if he even has one."

AIG's Frankel is also hopeful that the sale of extended service contracts via the Internet will improve. "A lot of product hasn't been sold over the Internet, either," he said, adding that some brick-n-mortar retailers still have difficulties moving warranties off their sales floors. "E-tailers are getting their feet wet. Everything is new."

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