“Everything Must Go” — Including Warranties?

By: Jeff Hatch

July 09, 2015

Losing a favorite place to buy a book, procure the latest electronic gadget or update the home can send passionate shoppers into an emotional spiral much like the stages of grief. 
 
Denial sets in first. “They can’t go out of business; they are always so helpful and sell only the best products.” 
 
Soon after comes the inevitable anger stage. “Great, they went out of business. Now my extended service plan (ESP)* won’t be any good. How could they do this to me?”
 
*NOTE: While many store associates and consumers consider the purchase to be an extended warranty, this is often not the case. Many extended plans are not truly adding on to the original manufacturer’s warranty, but rather, extend the post-warranty service options and are therefore more appropriately referred to as an extended service plan, or ESP.
 
Retailer bankruptcies have been an unfortunate reality, as almost 3,000 stores in the U.S. closed, were downsized or went out of business in the 2013 calendar year. While many analysts believe that the worst is now over, many consumers are still left wondering what will happen to their ESPs. The truth is there are a number of ways it can go.
 
In a worst case scenario, extended service contracts are voided when the company files for bankruptcy. This is often the case if the retailer underwrites its own ESPs. On a positive note, manufacturers’ warranties are in no way affected when a retailer closes. So, some repairs and replacements might still be covered.
 
In a better scenario, the retailer outsourced its warranty underwriting to a reputable third party.
 
“The end of a retailer doesn’t necessarily mean the end of the extended service plan,” said Sean Stapleton, CEO of Warrantech. “Responsible companies have safeguards in place, such as third-party contract underwriters, that protect their customers, even after bankruptcy.”
 
So, the first step is to read the service contract papers if a store closes. Chances are that the ESP isn’t actually owned by the retailer, so there’s no reason to panic. But, rather than waiting until the unthinkable happens, Stapleton advises to read the service contract before it’s purchased to avoid potential problems down the road.
 
“Check the fine print for a third-party provider and consider the reputation of the company,” Stapleton said. “Look for an address to write to or a phone number you can call if there are issues.”
 
Consumers are spending more on electronics and other big-ticket items than ever before, so ESPs are becoming increasingly important — as long as they will be there when they are needed. On its consumer protection website, the Federal Trade Commission urges shoppers to read warranty and ESP paperwork and look for answers to the following questions:
 
- How long does the warranty and ESP last?
- Who do I contact to get warranty and ESP service?
- What will the company do if the product fails?
- What parts and repair problems are covered?
- Are there any conditions or limitations on the warranty or ESP?
 
By asking these questions upfront and ensuring that their ESPs are backed by a reputable third party, shoppers can gain peace of mind that their purchases will be covered — even if a favorite retailer permanently closes.

Filed Under: extended, plans, purchase, retailer, service, store, Warrantech, warranty

Branding of Product Protection Programs

By: Jeff Hatch

January 06, 2015

A recent trend in the service contract industry is the emergence of administrators attempting to create a strong brand identity with consumers. Many administrators are working diligently to create brand recognition for their organizations by branding the protection offerings they sell through retail partners. The question is often asked, "Is this new approach in the best interest of the retailers?"

AMT Warranty and its subsidiary Warrantech's view is that the recent "brand building" business models employed by many administrators in the industry serve only to benefit the administrators and not their retail partners. This belief is derived from our core philosophy about the purpose of service contract programs. It's indisputable that service contract programs should provide important incremental revenue for retailers. However, our view is that a well-designed and maintained service contract program should drive customer loyalty and retention for the retailers selling the service contracts.

We view each service contract claim as an opportunity to enhance the trust between a customer and our retail partner who sold the underlying product and associated service contract. Product failures happen. When they do, customers feel a level of frustration. While it's true that the retailer is generally not the manufacturer of the product, customers often associate the product issue with the retailer who sold it to them. We believe that the solution to the product failure is best provided through a retailer-branded service contract in order to reestablish the trust that may have been diminished by the product failure. As a result of the service contract, retailers (through their administrator) are given the opportunity to engage in a highly personalized marketing campaign with a customer who at that moment may be their biggest detractor. We view this as micromarketing with macro effects.

In the emerging administrator-centric model, the solution is provided to the customer under the administrator's brand. The positive customer interaction and goodwill generated from resolving the customer's issue serves only to enhance the value of the provider's brand. That goodwill is retained by the provider, even after their relationship with the provider has ended. Even more problematic is that the administrator may also be marketing service contracts directly to consumers, including the customers of their retail partners. In essence, by agreeing to market service contracts under the administrator's brand, retailers could be promoting a competitor's offering to their customers. Moreover, the retailer has established a new relationship between their customers and a potential competitor. We feel that the resulting consequences for permitting administrator-branded service contract programs will have long-term financial implications for retailers as the strength of their administrator's brands increase in the eyes of the retailers' customers. 

While the desire of administrators to build their own brand value is understandable, retailers should be wary of the consequences.

Filed Under: administrator, brand, branding, contract, customer, product, program, protection, retailer, service

Extended Service Plans: What’s Behind All The Fine Print?

By: Jeff Hatch

December 03, 2014

Using a single-source provider for underwriting and administration offers gains in profit and service.

The real question isn't what's behind the fine print, but rather who is behind the fine print of an extended service plan. In today's economic climate, retailers need to be diligent in determining who can financially back and service their products with plans that don't negatively impact bottom line results or customer relations. While some retailers prefer to act as their own administrator for service, the overhead costs and time required to facilitate work orders, customer service and repairs can often lead to eroding profits and dissatisfied customers. For retailers that opt to rely on an outside provider for administration or underwriting, it can expose your business and customers to financial risks and service levels that don't align with your business goals.

As a retailer, customers trust that you'll stand behind the products you sell with service plans they can rely on. Now, more than ever, retailers need to select partners that not only provide sound financial backing but also the service required to assist when customers need it most. By working with a single-source provider for underwriting and administration of extended service plans, retailers can focus on sales knowing that the money saved and service gained from a customized program can deliver profitable margins and elevated service that keep customers coming back.

Understand the Plan

Knowing the difference between a credible underwriter and administrator is an important distinction to make and one that definitely needs to be evaluated before committing to a company or a program. As a first step, make sure you understand the responsibilities and differences between an underwriter and administrator. An administrator is the company that handles the day-to-day administration of the product's extended service plan such as processing claims and accepting monthly payments for the service. Often, the administrator's name and contact information is featured in the customer literature about the plan. The underwriter is the company that is ultimately responsible for the financial backing of claims according to the terms and conditions of the plan. 

Since not all administrators underwrite their own plans and vice versa, there are a number of extended service plan options available that allow retailers to customize a plan that's right for their products. However, the logistics of how a plan is carried out and who carries it out can reveal service inefficiencies, limited profitability and financial burden. In fact, according to some sources, a significant percent of administrators don't underwrite their own plans. The volatility of this approach can cause a number of problems for retailers including lack of funding or term changes that can become the retailer's responsibility in the event the provider declares bankruptcy. While this used to seem like an improbable situation, the recent filings of numerous multinational insurance companies make this harsh scenario a genuine reality.

Once you understand the roles of an administrator and underwriter, evaluating the provider's approach to maintaining financial responsibility and customer service will help determine the best program for your needs.

Financial Accountability

The most important point to consider when evaluating single-source plan providers or underwriters is the financial strength of the insurance company backing the program. If the company is financially unable to provide the benefits required, then you lose money, customers and credibility. Publicly traded insurance companies are an open book when it comes to examining financial status. Some areas to pay attention to include: historically good capital, recent acquisitions, ongoing organic growth and operating cash flows. Several organizations, including A.M. Best, Standard & Poor's and Moody's Investor Service, rate the financial strength of insurance companies. These ratings are among the most widely used indicators of an insurance carrier's financial health, or lack of it. Using these tools to assist in your evaluation is not only credible but universally accepted.

Customer Focus

The most important thing to your customers when they purchase a product with an extended service plan is how they will be cared for should something go wrong with the product. When a product fails, you need to rely on a responsive administrator to diagnose and troubleshoot the problem for customers in a timely and efficient manner. To help evaluate response rates, retailers should look at a provider's First Call Resolution rate, technical training for staff and network of service centers to ensure convenient and expeditious repair of products. In addition, service offerings such as fulfillment which includes carry-in, in-home and depot offerings or fulfillment by means of a new product, gift card or co-pay voucher delivered to the customer help maximize customer satisfaction.

Excellence in customer service is not an idle commitment so it's also important the provider shows how they successfully track, record and evaluate customer satisfaction to ensure they are meeting service level commitments. Another aspect to consider is how the administrator evaluates product reliability to continually develop competitive rates. Through comprehensive risk analysis, the provider can structure the extended warranty program in the most cost-effective way for the consumer yet profitable for the retailer.

While there are several factors a retailer needs to consider when choosing an extended service plan program, often the easiest and most profitable is working with a single-source provider for administering and underwriting the program. By selecting a full-service provider, you also have the benefit of flexibility in plans, categories, features and benefits to fit your needs and, more specifically, your customers' needs. While the fine print can be a bit overwhelming, selecting a single-source provider with proven credentials can help enhance revenues and build customer loyalty.

Filed Under: administrator, extended, plan, provider, retailer, service, underwriter