Thursday, July 29, 2010

would you like to purchase a warranty?

I am always interested in the innovative ways that companies try to grow their bottom line in dealing with consumers.  The promotions, warranties, freebies, bogos, and 'don't pay' sales often have me scratching my head at the stupidity of retailers or their naive customers.

I happened to come across an interesting one last night at Sears when I was purchasing a major appliance.  As is typical the sales associate wound up with the usual warranty offering, usually as this is occurring I am glazed over and getting ready to politely refuse.  However the Sears warranty threw in an interesting twist this time, which I have to admit, is clever and likely works well for them.  If you purchase the warranty for $110 and nothing goes wrong with the item within the 3 year time frame of coverage you receive a $110 gift card for Sears.  I still refused the offer as I want my precious $110 for myself for the next 3 years for obvious reasons to anyone who reads this blog.  Also who's to say that I'll happen to want to buy something at Sears in 3 years time.  That being said, I would imagine that many customers who typically waiver about warranties usually come over to join the protected now that this offer is presented.


optionsnut said...

Visions electronics does this too.

Its interesting because you can almost always find something to buy in a store like that or Sears for that matter.

Kinda makes you wonder how they make much money of these gimmicks?

larry macdonald said...

I find I sometimes forget about special offers with time delays. I wonder if stores are counting on that happening with a certain percentage of customers.

MG (moneygardener) said...

I don't see it that way. I can find something to buy anwhere but do I really NEED the item.

Me as well and I'll bet that you are right.

The Passive Income Earner said...

At Visions when I bought our HD TV, the sales person was continuously bringing the price down in order to sell the warranty. His monthly store performance target relied on it.

That was a mistake on his part because I started negotiating for more since I had the upper hand. I did end up taking it because of the discount and goodies I got with it. Other stores would not have competed on the price level anyways - I had already shopped around considering I can get employee pricing at Visions through an office deal.

MG (moneygardener) said...

I had to Google Visions Electronics. Then I looked at their store locations :)

Financial Cents said...

Interesting play (from Sears). I wonder what their baseline is/was: how many customers took the warranty before; implement the promotional change; how many customers are taking the warranty now?

Keep your $110, you can buy almost 8 shares of BAC with it (w/o commiss.)

The Passive Income Earner said...

It's definitely wise to shy away from the extra warranty. What's wrong with the manufacture warranty? I usually ask the salesman the question.

It's just a huge profit margins for retailers. It's another gimmick that prays on consumer's insecurity. I would be really curious to know how many people forget about using it later and how many make use of it.

Janette said...

My mother always buys the Sears warrantee. She has gotten her money back and more - since one small repair costs more than the $$.
I haven't followed suit. I was pretty unhappy when my fridge cost me 150 for a house call and small repair- right after the appliance warrantee was over. Always on a washer or fridge- never anything else, is my new motto.

The Financial Power said...

Not a bad strategy to use someone else's money. 100X1,000 customers only a year for a store = 100,000. Invested through their own Sears Credit Card which is at a min. of 10% = 10,000 which will easily cover the repair of those 2-3% repair related expenses. So after they use your money for 3 years to cover their repair expenses, they are nice and give it back to you IF you have no repair needed.

Just think about those numbers on a Sears Scale --- Millions and millions of dollars.

Anonymous said...

I occasionally buy extended warranties on expensive purchases (TVs and the like). Sometimes you find that the sales person has a lot of room for negotiation on the warranty cost but virtually none on the item you're buying. I've bought 5 year warranties on $4000 products for $15-20 before, this strikes me as a resoanble deal.
It did make me laugh though when I got offered a warranty on a $20 router in Best Buy the other day

Anonymous said...

The Brick uses this same tactic, which I can only assume they are betting on the buyer forgetting to call them on it in 3 years time.

My defense - while I was sitting at the salesman's desk, purchasing a washer/dryer, I pulled out my phone and set up an Outlook appointment for exactly 3 years in the future, with a 2 week reminder, to call the Brick. Even included the order number and the phone number.

Suckers. (Except I'm a sucker for giving them my money to hold onto for 3 years...)

Dividend Monk said...

I virtually never pay for the extra warranty. Businesses wouldn't be offering a given warranty if they weren't making a profit from it, so that signals to me that I'm statistically unlikely to get my money's worth.

I only find warranties useful on things that would be financially devastating to lose, like a car.

Credit Cards said...

I think warranties are important and one should never try saving money on such things. These kind of savings may lead to more spending on repair or a new purchase. I am cautious and conscious on this.