An internal Best Buy training document sent to The Consumerist reveals Best Buy’s position on the “Extended Warranty” debate. Best Buy says they don’t sell those pesky “extended warranties” that get so much bad press— instead they sell “performance service plans.” The document also instructs Best Buy employees on how to sell these warranties to Upscale Suburban “Barry” and “Jill.” It’s important for consumers to be familiar with these tactics so they are able to recognize them while shopping in a high pressure sales environment such as Best Buy. Understanding the sales pitch puts you on equal ground with the salesperson.
From the document:
Myth Of Extended Warranty
Best Buy’s PSP/PRPs are not extended warranties. Some customers don’t purchase extended warranties because of the bad press that they sometimes receive. Extended warranties extend the limited manufacturer’s warranty and do not cover things like normal wear and tear, no lemon based on different repairs, or power surges. Our PSP/PRP’s offer benefits above and beyond the manufacturer’s warranty. It’s very important that you never disparage the manufacturer’s warranty in any way.
While it is true that Best Buy’s plans do offer services beyond what the manufacturer’s warranty offers, Consumer Reports (the source of the bad press the document refers to) makes it very clear that they are talking about “performance service plans” or “extended service plans” when they tell people to skip the “extended warranty.”
From Consumer Reports (emphasis ours):
Retailers are pushing hard to get you to buy extended warranties, or service plans, because they’re cash cows. Stores keep 50 percent or more of what they charge for warranties. That’s much more than they can make selling actual products.
For the consumer, extended warranties are notoriously bad deals because:
* Some repairs are covered by the standard manufacturer warranty that comes with the product.
* Products seldom break within the extended-warranty window–after the standard warranty has expired but within the typical two to three years of purchase–our data show.
* When electronics and appliances do break, the repairs, on average, cost about the same as an extended warranty.
We have long advised against extended warranties. In fact, we feel so strongly that consumers are being misled about them that last year we took out a full-page ad in USA Today (see below) to warn shoppers.
Consumer Reports suggests that, rather than paying extra for a “extended warranty” or “service plan” you take the money you would have spent and place it in a small emergency repair fund. This way you can use the money to repair whatever breaks. This money will never “expire.” It’s also important to remember that your credit card probably has extended warranty protection that doubles the manufacturer’s warranty–just for using your card to purchase the item.
Here’s a chart that shows the average failure rate of 3-4 year old electronic items. You can use this chart to judge for yourself what level of risk you’re comfortable with when it comes to extended warranties.
Why you don’t need an extended warranty [Consumer Reports]
Click the pages below to see the document in full.
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Is Best Buy saying that they don’t offer Extended Warranties at all or that they offer both those and performance service plans? Because if they are in fact saying they don’t offer extended warranties at all then how is the headline inaccurate?
*cops to being too lazy to read through the internal documents
I buy Best Buy psp’s because they HAVE helped me in the past. I had a 42” Westinghouse HDTV that had a bad board in it which resulted in blue and white dots all over the screen in 1080p mode. These dots only got worse the warmer the tv got. Westinghouse was going to charge for a tech to come out and fix it. Best Buy on the other hand sent a tech out for free and then let me exchange the tv. I ended up with a 47” Philips with Ambilight.
@Rectilinear Propagation: the anger with the headline is that it doesn’t relate to the story at all. best buy is NOT saying their extended warranties are a myth. they are saying that it is a myth that their PSPs are extended warranties.
The memo clearly does not state that “their ‘extended warranties’ are a ‘myth’.” It says that the myth is that their service plans are “extended warranties”. Then they go on to explain how the plans differ, with all the corporate jumbo on how to sell it (retail tactics don’t seem to change much across different stores).
Best Buy does get a lot of bad press (and for good reason most of the time), but this is just deliberately misleading on Consumerist’s end.
I like Consumer Report’s suggestion of putting the money that you would have spent on the PSP/PRP aside in a savings account because it will never expire. I can understand the concern that the money in the savings account might not be enought to cover the repairs if something went wrong with an expensive product. However, consider this: if you buy the PSP/PRP to go with every expensive item you purchase, that money spent would add up and chances are not every product that you buy will require repairs or replacement. If you put that same money aside in a savings account, it would keep adding up and you likely would have enough money to repair/replace the item that does end up breaking and you would probably have money left over. With the plan, it might not cover the repair or replacement depending on what is broken or how it was broken. However, with money in the savings account, you aren’t limited to what Best Buy feels like covering. Also, you are only paying for what actually ends up breaking instead of what might break.
High pressure sales environment – ha! As an ex-audio visual professional, I trap those kids in technical babble-speak lies every single time I’m in there (and engage sales reps). The complete fabrication of hogwash that come out of those mouths that they talk to their mothers with is simply astonishing.
It’s almost worth getting an extended warranty on a laptop, because if there’s a problem with the motherboard, which happens a lot, it can easily cost twice what the warranty cost. Of course, if its a laptop that costs less than $700 or so, it’s probably never worth it, because you could just buy an new upgraded laptop if your mobo fails . All the other parts are cheap and easy to replace though, even the screen.
@SomewhereOutThere: Some very good words of Wisdom there. When you get offered an extended warranty, rather than buying it. Put the cost of that warranty in a savings account.
@ogremustcrush:
I would agree with that. On a high dollar laptop with a 17″ LCD especially. The price of most parts direct from the manufacturer is very prohibitive. Sure there are cheaper alternatives on eBay, but 90% of them are working pulls and may not work by the time you get the part, I’ll buy them for my customers, but only if they acknolwedge that they are used parts and I can’t guarantee them. Also, not all shops charge $80 flat rate for repairwork like I do on Laptops. Most of them charge insane /hr charges and then say there’s an X hour minimum and run the clock up.
@milty45654: Make sure to save all the items in this post. The more people do that, the more likely they’ll be playing whack-a-mole until the end of time on this one.
@sp00nix: You’re retarded. The 360 has a 3 year manufacturer warranty. Best Buy pretends they’re doing you a favor, but they’re shipping the 360 to MS to fix it. 5 minutes of handling for $50? I want to get in on that business.
Oh, and this article is completely dishonest as far as content that should be on the Consumerist. The title is misleading and the abstract of the article is not accurate. Shame on the blog.
@Moosehawk: lcd screen on a laptop: $1200. Mine’s gone out twice.
Do the math.
Of course, I work at best buy, so my PSP was half price
@Moosehawk: motherboard = several hundred dollars, if you’re putting it in yourself, screen = ditto,laptop battery = $80, power cord = $80… Not to mention that in many cases, the cost of repair is higher than the unit’s value and you walk out with a brand new, way better computer. @Eric: DC power jack failure can be normal wear and tear, which is 100% covered, I’ve gotten 3 units back from service this week for this exact issue and they are fixed and covered by PSP. Cracked screen is covered with ADH, not under regular PSP, that’s true, unless it’s due to being left out in the heat “heat, dust, humidity, power surge, and normal wear & tear” remember? I’m a PSP goddess…@Blinkman: umm, WRONG! we don’t fix 360s, we give the customer a new unit and junk out the defective ones. When I worked as a CSR, I would exchange about a handful every day under PRP. I’m certain Microsoft’s warranty is great, but you have to be without your unit, deal with shipping it off, etc. Please be *informed* before you bash.
Also… before you purchase a PSP, why not read over the ENTIRE brochure when you get home, all the terms and conditions and benefits that you paid a lot of money for. If you don’t like the fine print, return the service plan, it has the same return period as the item purchased and is returned in full. If you wait longer than the 30 or 14 days, it will be prorated. It never ceases to amaze me how many people spend hundreds of dollars on services and products without asking any questions. If I had a dime for every person who says to me “I just signed, I never read contracts”…
@Blinkman: Ah yes the 3 year warranty. The warranty actually only covers RRoD. Anything else and you would be left paying out of your pocket for the repairs.
Where the hell is Consumer Reports getting their reliability data from? If anything it seems inversely correct. Between myself and my friends, we’ve pitched far more TVs in the past few years than anything else on that list. In the meantime, my 10 year old IBM Thinkpad and 6 year old Dell Latitude are chugging along.
@FLConsumer: Because laptops are notoriously fragile. While TV’s tend to just sit there, laptops are meant to be carried around. Now, YOU don’t drop your expensive electronics willy-nilly, but many others DO. Also, you fail to disclose what TV’s you are buying, how you treat them, and what environment they are placed. Also, Percentages aren’t absolute. Some people will never break a TV.
Myself, I still have all three of the last three TV’s I bought, and I gave away the ones older than that. They still worked. I also still have the last three computers, my elderly laptop, and just recently replaced a refrigerator I’ve had for about ten years. Just because you don’t fall inside the percentage, doesn’t mean the percentage is wrong.
@FLConsumer: they just don’t make things like they used to… my MIL still has her Magic Chef appliances from 1970, in Harvest Gold, and other than looking like a$$, they work wonderfully.
In the car audio department, PSPs are invaluable. We get issues all the time with satellite radios and decks going bad in that 4 year time period.
@mazement:
“The first rule of gambling is, “the house always wins”. I don’t know what the house edge is on warranties but I’d guess that you’re better off going to the casino or even buying lottery tickets.”
You are close, but not exactly correct. If the house *always* won, then nobody would ever play. You have to pay occasionally or people stop playing. Some forms of gambling involve some degree of skill and others like roulette are pure luck. On games with some degree of skill individual players who understand the rules well can come out ahead, but overall the statistically average player will lose money.
In gambling as is in warranties the correct answer is that given enough players the house ultimately wins. The house with enough bets will win if the game plays long enough.
The trick with warranties as with gambling is knowing the rules before you play. There are some items like memory or cables where lifetime warranties are common where it is fool’s bet to buy a warranty. More problem prone items like laptops may be worth buying a service plan depending upon the conditions of the plan, the cost of the plan, the length of the plan, historical reliability of said product by said brand that you are buying, how you use the product, your capabilities to do repairs, how quickly are prices dropping, and of course the length of the default warranty.
A good example of a situation where a service plan might make sense is if you are buying a Mac and have no interest in buying a Windows machine if the mac breaks after a year. You can of course replace the HDD or RAM, but if the logic board is dead Apple will charge you an obscene cost for a replacement. Furthermore, if a logic board on a mac goes south, there wouldn’t be a cheaper mac a year from now. Apple historically doesn’t release a mac that is cheaper than last years model.
For the guy who can easily do repairs the only cost is parts. For someone like this service plans rarely make sense, but if you aren’t so inclined the price of a repair would be the parts plus labor. For a lot of repairs the labor is equal if not a great percentage of the cost than the parts.
On the flip side there are a lot of people especially with computers that barely use the machine, where most of the parts won’t get much wear and tear at all where the chances of anything dying prematurely are remote. The success of convincing these folks to buy warranties is why the average payout relative to the cost of plan is so low.
There are simply too many factors to simply give a one size fits all answer, although I will admit that service plans don’t make sense for a lot of people because they never use the product enough for it to ever reasonably fail.
@wellfleet:
“Also… before you purchase a PSP, why not read over the ENTIRE brochure when you get home, all the terms and conditions and benefits that you paid a lot of money for. If you don’t like the fine print, return the service plan, it has the same return period as the item purchased and is returned in full. If you wait longer than the 30 or 14 days, it will be prorated. It never ceases to amaze me how many people spend hundreds of dollars on services and products without asking any questions. If I had a dime for every person who says to me “I just signed, I never read contracts”…”
This is true of contracts in general. Some service plans depending upon the product, the conditions of the plan, how you are going to use it, etc. are worth getting, most aren’t. I can’t believe how few people spend the time to read what they are signing.
I just want to add that this has been Best Buy’s position for at least 15 years.
I worked there when I was in high school, in the early 90s, and we all got the exact same spiel.. “They aren’t warranties, they’re service plans.”
True, perhaps, but also a caveat in their favor – not calling it a warranty allows Best Buy not to be subject to certain states’ laws that cover extended warranties and insurance.
One good thing to know: you can return a Best Buy PSP, for a pro-rated refund, even years later.
The manger will hate you (it’ll bring their daily numbers down), but the text in the plan (at least the last one I had from 2005) allows it.