If Companies Believed In Their Products, Why Would They Need To Sell You An Extended Warranty?
from the like-insurance-in-blackjack dept
Hopefully, most people know this already, but given that it's the time of the year when people do lots of electronics shopping it's nice to see Consumer Reports reminding people that extended warranties are a bad deal (via Hardware 2.0). Most of the time, the products are unlikely to break within the warranty period, or if they do, the cost of repairing them is not much more than the warranty itself. For products that do break often, all too frequently the warranty has an out that doesn't cover the specific problem. Yet, retailers continue to push them because they're basically pure profit. In fact, since Consumer Reports claims retailers keep about 50% of the price of a warranty and only a tiny percentage on goods sold, they often make a lot more money selling you a $100 warranty than a $400 TV. A totally different report claims that retailers actually keep 80% of the price of a warranty and includes an example of a warranty not always covering what the buyer expected. Of course, none of this talks about the other big problem with the rise of warranty programs -- it's basically an admission that the products they sell aren't built to last. If products had a specific reputation for quality then no one would ever even think about buying an extended warranty -- cutting off this profit stream. In other words, the incentives are to build a product that's just good enough to last a little while, but not good enough to be problem free. Some say that this decrease in quality makes plenty of sense when there's constant innovation and prices continue to drop, to the point that it's often cheaper and better to buy the latest version every few years rather than making sure you get a really solid product. However, it certainly creates a fine line that often ends up with customers feeling ripped off -- which is rarely good for business.