After Consumer Reports issued an analysis of whether buying extended warranties on products really helped protect a customer against wear and tear during an allotted period – and concluded that they didn’t – Harvard Business Review has fired back saying that warranties are a necessary part of making customers aware of expected product lifecycles.
Now, many are consumers and experts alike are scratching their heads and wondering which respected institution knows what is best for the buyer.
According to Daily Finance, Consumer Reports, which has been a trusted source of shopping information for years, concluded that there are only a few circumstances in which purchasing a warranty pays off in the end. After years of study and consultations with thousands of members, the publication argued that the cost of fixing or replacing an item when it fails is usually the same cost as an extended warranty.
However, consumers buy warranties, essentially, to fix any problems that will occur in the future. But with dollars expected to be worth less in this period, most consumers lose money every time they buy a warranty. Often, this warranty goes unused anyway, with the product manufacturer deciding on how long the warranty will last, and then choosing how much quality that product will be built with to last through the period.
Put simply, “most repairs do not occur during the limited time period covered by the extended warranty,” Consumer Reports explained, adding that technology has made it so companies can sell warranties that are known to expire long before the equipment ever fails.
Another viewpoint
However, when Harvard Business Review responded to the study, claiming that warranties are, in fact, essential, many turned their heads to listen. The media outlet stated that pricing strategy consultant and HBR blogger Rafi Mohammed said Consumer Reports had made a “blanket judgment” in presuming all warranties had the wrong intent.
Mohammed wrote that even if a warranty is sold with the company’s planned obsolescence in mind, the consumers can still derive value from the purchase. For one, an extended warranty on a fixed-price product minimizes the risk of getting a massive repair bill in the mail. Also, warranties ensure that all repairs are taken care of by the warrantor, making it easier on the consumer.
Warranties may even come with added perks, such as free on-site repair.
Cost is bottom line
One of the most telling factors that warranties may not be in the best interest of buyers, Consumers Reports argues, is that stores typically earn 50 percent gross profit margins on them – more than double Best Buy’s total merchandise profits.
According to CBS affiliate WFMY News, there are a few simple rules for buying an extended warranty. The first is to never spend more than 20 percent of the products value on the warranty. Also, these offerings can vary, so it pays to look around for the best deal before making a purchase.
However, new technologies are making it easier than ever for companies to accurately predict when products will fail, which if communicated with consumers, can cut the cost of warranties significantly.