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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