Fewer Consumers Buying Extended Warranties For Electronics
Here's some good news from the Seattle Times, fewer consumers are buying extended warranties. Even though Americans will spend $6 billion on extended warranties for electronics, the popularity of said warranties is waning.
Best Buy recently disclosed in its annual report that extended warranty sales as a percentage of revenue fell 12 percent during the past fiscal year. At Circuit City, warranty sales last year fell 8 percent as a percentage of revenue.Hooray! The word is getting out. Don't fall for the warranty sales pitch.The declines are welcomed by consumer advocates, who have long argued that extended warranty contracts, also known as "service contracts" or "protection plans," are too pricey and often unnecessary.
"There appears to be a growing awareness that these are a sucker's bet," said Tod Marks, a senior editor at Consumer Reports magazine.
"The odds that you're going to need an extended warranty is extremely rare," Marks said."The best idea is to take the money you would have spent on a warranty and put it in the bank."
"In the unlikely event that something goes wrong, then you've got the money to repair it. And if nothing does go wrong, then take your spouse out to dinner."
Consumerist recommends buying expensive electronics with a credit card that offers free extended warranty protection.
More electronics buyers skip extended warranties [Seattle Times]
(Photo:Maulliegh)
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Comments:
The only PRP/PSP I ever bought was on my first iPod many years ago. At that time they offered PRP, so I used that to upgrade to new models. I'm still on a 4G, but it has been replaced twice due to battery life. I'll definitely take it in before the plan runs out in 6 months.
When they try to sell me the extended warranty, I just tell them that I have saved several thousands of dollars over the last ten years by NOT buying extended warranties. I have never once wound up needing an extended warranty and if the day ever comes that something goes wrong, I'll just take it out of that savings and replace the item. Still having saved more in the long run than if I'd bought the extended coverage.
The last time I entered Best Buy was to buy a spindle of DVD-Rs for $12. The cashier tried to offer me an extended warranty for it. Thats when I knew this place was losing it.
Forgot to add. I would like to add this $1 pack of Juicy Fruits as well, sir would you like an extended warranty for only $5, incase the flavor of the gum dissipates before you can fully enjoy the gum.
Kid tried to sell me a replacement plan on a $10 calculator at Office Max last week. Needless to say, I didn't buy it.
@IC18
LOL
Most of the salespeople these days seem to agree that these warranties are worthless. The girl at GameStop could barely contain her laughter as she went through the company-mandated bit on buying an extended warranty for my Wii.
I got an extended warranty from Best Buy on three items, but I'm glad I got it on each of them. Each of the three items failed out of manufacturer warranty, but still within the extra $20 Best Buy warranty.
The first was a 1st gen PS2. Everyone knows how bad those were with the lasers not being able to read discs after awhile.
The second was a PC that my parents got me for my birthday when I was in high school. The HD failed, then the motherboard, then some other random thing and that was the three strikes and I got a brand new PC for free, while each time the repairs were also free of cost.
The third and final was for a PSP. Very glad I got it covered as the first one I got had several dead pixels on the screen. Free replacement. I had that one for awhile and the battery life went way down after a year. Free replacement.
I got an extended warranty for the washing machine I bought a few months ago, but I've seen enough of those break down that I thought it might be a good idea. For appliances or other products with a higher failure rate, it's not a bad thing to consider.
I think theyre not a bad idea for major purchases, i.e a 42 in plasm tv, where replacement costs are prohibitive. But anything less expensive than that, its probably not worth it.
I bought a Fifth Element on Blueray yesterday @ CC, I told the girl don't even try to sell me a 7.99 protection plan on a dvd, cause it isn't happening. She responded by saying that she was embarrassed to even mention most of CC's protection plans and skips it 1/2 the time.
I don't know... I have saved hundreds of dollars by deliberately breaking my digital cameras and getting them replaced right before the extended warranty expires, renewing the extended warranty each time and doing it again. I'm on my third camera now, and will get my fourth and last one next September, as I'll probably want an upgrade in two years. So let's see:
Cost of first camera + extended warranty on first, second and third cameras: $300 + $20 + $15 + $10= $345.
Cost of first, second, third and fourth cameras had I not purchased the extended warranty: $300 + $200 + $150 +$120 = $770.
As you can see, even with the declining prices of digital cameras (the camera I originally paid $299.99 for now sells for $120!) I've saved almost half of what I would've pent otherwise. I'll keep getting extended warranties for this kind of stuff, thank you very much.
I bought the accidental protection plan on my camera with the full intent of "dropping" it to the point where it's not cost effective to fix the month before the warranty expires and then getting a free upgrade out of the deal.
I don't usually buy extended warranties for myself because I try to take care of my electronics as best as I can. However, my brother is HORRIBLE with his electronics. I bought him a camera from Best Buy for his birthday a couple years back and got the extended warranty on it. Turned out it was a great idea because he broke it within a year.
I brought the camera back to Best Buy and was able to get an upgraded camera (the camera I bought was not made anymore) after they tried to repair it.
I agree with Consumertaz - extended warranties aren't a bad idea for major purchases.
Exploiting the system by purposely breaking merchandise just before the warranty is up is actually fraud and you can face hefty fines and jail time.
Aside from that fact, most extended warranties have a clause that states that they do not have to replace the merchandise with a brand new updated piece of technology, but can in fact replace it with something the equivalent cost of what the current broken product is at its current "new" price. Its most likely a clause that helps them protect themselves against jerks that abuse the system like a few of the previous comment posters.
Either consumers are getting smarter, or its just most of them have bought all they needed for now
To the people who are saying "it's probably worth it for higher cost purchases" - no it's not, you would be better off putting the cost of the warranty into your savings account each time. The reason being that the companies are in this to profit, so the cost of the warranty is not proportional to the risk of failure... so yeah, say there is a 10% chance your product might fail, they are going to charge a lot more than 10% of the product price for a warranty, in order that they don't lose money... so mathematically, you are not getting good value.
Plus, most consumer electronics change so quickly, lose value or drop in price so rapidly that when after 3 years your $1000 TV fails, you will probably either want the latest equivalent model, or can pick up a similar model at a fraction of what it cost you 3 years before...
Also when it does fail, dealing with getting a replacement is so painful from a lot of these places that it's not worth it anyway...
Finally, desktop computers warranties are worthless because when a component fails you dont have to replace the whole system - whats the point in a $300 warranty on a $800 PC, when if the HD, mobo, ram can be replaced for a hundred bucks or so...
@HeySuburbia: Think that's bad? CompUSA tried to sell me a $10 warranty on a $7 tube of Arctic Silver. For those of you who don't know what AS is, it's a thermal paste you put on a processor when installing a heatsink. In other words, it's a consumable product basically. You put it on, slap on the heatsink, and forget about it. It doesn't break. It would be like selling a warranty on a printer ink cartridge...and the warranty was more than the ink.
No wonder that CompUSA went out of business....
@ALK509 Yes, if you intend to commit fraud then extended warranties can make you money. For those of us who aren't criminals they are a bad idea. ;)
And have any of you ever tried getting a repair out of BestBuy while your extended warranty is still valid? It doesn't work.
best buy sucketh.....................
I had to push these when I worked at Circuit City. I never really even offered them except on big ticket items when they "might" be worth it. I got in trouble a lot for not having big numbers in this area, even when my others were great. I guess I just have too great a conscience for sales.
@masonreloaded: I used to work at Sears 10+ years ago, and our Product Protection Plans were 10% of the price of the product at point-of-sale. They were great. 3-years protection, any reason, no questions asked. You could bring a PC back after two-and-a-half years (remember the crappy old PackardBell's?) and get a new one, even if you "just don't like it." The remedy was to use your purchase price toward any new purchase, and we refunded the difference, if any.
Then again, that was in the days of truly empowered employees who wore suits and ties. I once accepted a return from Circuit City (with CC price tags and everything!) toward a newer system from me.
Jeez, no wonder Sears is going down the tubes.. they must have been hemorrhaging money.
When my iPod broke I had the warranty on it, at the time the iPod was like $350 for a 20gb. So I took the credit, bought a Zune and a few other things.
Yes, that's right. I dumped an iPod for a Zune. Needless to say the extra credit was nice too.
It depends on the type of service plans that are offered.
For instance your 360 controller, if it covers "accidental" then it's a good idea. If you get mad and decide to throw it, you will get a new one.
It's a repair plan or does not cover "accidental" damage then it's no good. Those things rarely break and if it does the manufactures will usually replace b/ they are so cheap to make.
But working at a retail store, I see alot of laptops and desktops come back. Seriously when you can buy a Laptop for $500 out the door, there can't be the best parts.
Also those damn batteries goto hell after 1 year or 1.5 years...
@ALK509: I'm with you on deliberately breaking stuff just to get new ones. Just ignore everyone who says it's fraud; they just don't know how to play the game. I call them suckers. As a matter of fact, I deliberately total my car every couple months so I can get a new one. And I burn down my house at least once a year too.
So many people and consumer groups talk about how terrible these extended warranties were, but I have a lot of great experiences with them, both as a consumer and as a retailer.
I used to work at Best Buy in college a couple years ago. On my first day (or week...I forget) I was being trained and I saw a kid going on a shopping spree with one of the huge flat carts. Best Buy's PSP have a No-Lemon Policy. If they have to service something more than 3 times, you get replacement of comparable value or a voucher for the purchase price.
This kid's computer died for a fourth time the last few days of his warranty and this was just before desktop prices plummeted a while back. The kid opted for the voucher and got a brand new computer, monitor, printer, several PS2 games, a Logitech Driving wheel for PS2, etc. This teenager was elated and with his mom or Grandma or something and going on this $3,000 shopping spree. Hello, free upgrade!
As a customer... having seen this, I bought the 3 year PSP on my HP (Huge Pile of crap) desktop. I got a motherboard crash diagnosed, replaced and reconfigured for me within the first 3 weeks (admittedly within manufacturer's warranty) by Best Buy. I got at least one or two hard drives replaced within the 3 years and gotten numerous free diagnostics, etc. Although I bought the plan with a discount, I got my money back several times over in parts and labor costs.
Keep in mind that your average consumer is not skilled enough with computers to necessarily diagnose hardware failures. For my money, I got the service, parts and labor all covered for a fraction of what I would have paid a la carte.
I think extended warranties can be good on big ticket items. I wouldn't buy them on, say, a CD.
@RONDMC - Yes, in some cases it will turn out to benefit you, but playing the numbers over the long run, you will lose by buying extended warranties - its like gambling - the odds are stacked against you benefeting on the the deal, but some people will, however for every person who gets the $1000 back to replace their faulty system the majority of people who buy one will be out $200 for the warranty and never need it...
@masonreloaded: - It's basically like this. It's a waste of money...unless you need it. :) On some items, I'm willing to pay a few hundred dollars for peace of mind. Now, when retailers stop honoring these and try to screw consumers, that's when the value plummets.
If Best Buy just fixed a broken computer without trying to fight you out of it, I think there would me much less aversion. They can't have their cake and eat it, too.
Several years ago, I bought a Fuji Camera from BB including the PSP. Glad I did, that sucker was in the shop on 4 different occasions. It was all for the same thing, the battery compartment lid kept breaking. I never pressed the issue on a new camera, As long as it didn't cost me to repair it.
On the flip side, one one my 1st jobs was working @ Montgomery Wards in the Electric Avenue area. I was let go from their because I didn't sell enough of those warranties. Like I'm going to push someone to buy a 30 dollar PSP on a 20 dollar phone. Yeah that made since. Anywho, I went to work for McDuff's shortly before they closed those down. THere, I was able to rape customers for those warranties. If I remember, I think I got like 20 bucks for every warranty sold on a big ticket item. I was not uncommon for me to make almost a grand on sales/warranties on a Saturday.
But yeah, I would suggest getting a warranty on the big ticket items. The parts alone pay for itself. Trust me I know...
I've done well with extended warranties on monitors and printers: two things that have a high failure rate and I despise fixing myself. Monitors in particular, as they're really not very user serviceable. I went through 3 monitors in five years (name brand ones, too: ViewSonic and Sony) and only paid the original $299 + $99 for the first 17" back in about 2000, ending up with a 19" ViewSonic in 2005.
If the "big ticket item" is a computer, even if your PC has a multitude of failures it is quite unlikely you are getting a good deal. I home built my most recent computer and I'm not particularly worried about losing money on hardware breaking down. Why? My GPU has a lifetime warranty, my RAM has a lifetime warranty, my hard drives have 5 year warranties, all from the manufacturer and all at no extra cost. And if my computer goes down I don't have to worry about the guy repairing it trying to sneak a peak at all of my files.
This is just marketing strategy backfiring. Circuit City and other big-boxes rely on the extended warranties to up their profits, as well as credit applications (each store gets something like $80 for each credit approval), higher-margin accessories (such as monster cables for TV's), and gift cards (likelihood that they will never be used results in pure profit). People are becoming wise to the fact that the claims process on the extended warranty is so drawn-out and frustrating that it is can be essentially useless in some circumstances. Unfortunately, this is just the trade-off for low or below-margin pricing in all retail elements.
The big exception for extended warranties is laptops. I've bought AppleCare for my laptop every time, and it's always paid for itself. Laptop repairs are expensive.
I once got offered the PSP on a Logitech Keyboard.
Never mind that Logitech keyboards come with a five-year, hassle-free warranty (just call in, give the CSR your serial, and they'll send you out a new keyboard).
With the bad luck we have had with new big ticket items we opted to buy the extended warranty with out TV. The previous TV was a really expensive Zenith/Gateway digital. We figured it would last longer and be better quality due to the brand name and price. It broke down constantly and when the Zenith warranty expired we found that nobody would work on it.
So instead of paying through the nose for a new LCD tv. We bought a lower range model with a better than average picture. We paid for the extended warranty that was about 5% of the value of the TV.
I would never buy one for a smaller item.
@Maurs:
The majority of people buying PCs at retail stores cannot tell the difference between a modem and a desktop, let alone build their own computer. The biggest problem "smart" people have is that they project themselves into everyone else's position.
I would never personally buy a service plan on a computer because I can fix it if something goes wrong, and it will likely be upgraded parts at that. I would recommend service plans to all of my out-of-state family, however, since they know just enough to email and surf the web.
Finally, to those saying, "just put the money in the bank and you'll come out ahead." -- Who could ever do that and not touch the money, unless they have more than enough money to begin with? I'm sure you give the same advice to people about Health Insurance then, especially if they're younger and aren't likely to have problems...
@medic78:
Great quote from Ruthless People (1986, Judge Reinhold):
"Sandy, it's over. Sam isn't going to pay the ransom, he couldn't care less. I'm no criminal. I can't even sell retail, and that's legal!"
I just bought a laptop at Staples and the only thing the salesman was interested in was selling me an extended warranty. So much so that I am worried that when I firmly said no thanks more than once, he went to the back and got mine from the pile marked "no ew", you know the laptops that are going to crash the day after the included warranty is over.
@alk509: Asshattery shal get thee arrested. Seriously dude, I don't buy into the whole extended warranty BS, but it's still lame when someone abuses the system.
My best extended warranty story was when I bought my fireproof safe. Right on the box, plastered on all six sides, was a big red starburst and yellow text reading "Lifetime Warranty". Dumb bitch at the counter said "Would you like our three year extended warranty on this for only $29.95?". I pointed out the blatant marking on the box, and the moron says "Yeah, but our warranty would extend theirs by three years".
Wait for it...
I just use my credit card that doubles the warranty and call it good.
what makes sense to me is buying the Product REPLACEMENT Plan on smaller, frequently used electronics. I have been getting this plan on my mp3 players since way back in the day when I had the awful Nomad Jukebox. Now; I am now on my fourth iteration of FREE mp3 player. The plan pretty much means "your product no longer works so you can get anything of the same value." Its not fraud, its just making use of my warranty investment. My 8gig iPod Nano was free (with another PRP included) after my ancient iPod finally quit.
I think a huge factor in the "number of people buying exteneded warranties" drop comes from the lack of commissioned salespeople in any of the major chains.
I worked at CC from 97-01 and when we sold warranties (or "guarantees" as they preferred we call them) they paid VERY well - always more than whatever we got for selling the actual product.
They put a lot into helping us sell these. Lists of objections to overcome, the "write down" method, even the opportunity to call in a manager to help you close the deal.
Anyone who has purchased something from Best Buy or wherever in the past few years can tell you that these warranties are basically an afterthought for these companies. Some girl who doesn't know anything about the product you bought will offer it to you as you're checking out. You can cut her off with a "no" half way through and she'll stop her pitch and go back to applying lip gloss.
Add to that that most electronics simply are so cheap that they're no longer worth "guaranteeing" and the decline seems like it should actually be quite bigger...
On the little crap like Dvd's the prp is worthless. Less then worthless, shoot yourself if you can't keep a cd in good condition for two years.
On PC's and TVs... thats a harder call. With laptops they do have the accidental damage stuff (read as kid plays with warranty) and most cpu and TV manufacturers aim for penetration with their warranties. And yes, you could put that $200 in the bank and spend it on another $1000 laptop or the $500 of repairs you will need to get. Wait, that is more money.
Honestly, when some dumbass with five kids doesn't buy the $100 plan on a laptop I smile. I'm gonna see that person within the month, but after the return period, yelling and screaming about getting it fixed for free.
That very scenario has happened three times and I do a little victory dance in my head.
Just wanted to share that.
Short warranties= waste of money unless you're dishonest and lie to get your money's worth. Long warranties are golden DEPENDING ON THE PRODUCT. You have to know what you're doing, but I've made tons in free upgrades and resplacements over the years. Description and examples here:
Re: breaking products on purpose and returning them under warranty being fraud:
That clearly depends on the contract for the particular warranty you buy... My warranty expressly states they'll repair my camera or give me a new one if it breaks for "any reason" (and that's an actual quote from the literature). These kinds of repair-or-replace, "no questions asked" warranty programs are actually quite popular, and I've been offered them a lot in the past... It's routinely used as a selling point, in fact: If you allow the Sear's salesperson to actually pitch you the warranty instead of just blocking them out, you'll hear something along the lines of "you can throw it against the wall, drive your car over it, dunk it in the toilet - just bring it back with your receipt and we'll give you a new one for free!"
I suppose idiots sticking to the "break it on purpose = void warranty" dogma without actually reading the contract are how the companies can afford to offer such good deals!
The only thing that really makes ZERO sense is PSP/PRPs (Which stand for Product Service Plan/Product Replacement Plan) for anything under 50 bucks. Appliances, TVs, Computers, Game Consoles...they all pay for themselves whenever you use them.
So, I have a 5-year-old refrigerator, washer and dryer. I bought all three at once when I built a house. I selected appliances of decent quality but far from the most expensive/most complex. My washer is front-loading, notorious for being the most service-hungry type of washers. I have had no problems, no service calls, no repairs... so I would've thrown away money that I spent on an extended warranty had I purchased one.
To the poster suggesting that telling people to pocket the money they don't spend on extended warranties is the same as telling them to just save up instead of having health insurance, it's hardly the same thing. You're not going to die if you can't afford to have your Tivo repaired, and your crack about people only being able to do this if they have extra money in the first place doesn't wash... after all, they'd have to have extra money to buy the extended warranty.
Best Buy has gotten pretty out of control with their extended warranties in recent years. Not only have I been offered an extended warranty on an Xbox 360 controller I bought, but on a $20 cordless phone as well.