Nato

Team Members:
 Jamie
Wicks
 Aldo Michel
 Justin Tan
 Ken Poon
Extended Warranty
Repair rates for 3- to 4-year-old products
Product
Laptop computer
Repair rate
43%
Refrigerator: side-by-side, with icemaker and dispenser
37
Rider mower
32
Lawn tractor
31
Desktop computer
31
Washing machine (front-loading)
29
Self-propelled mower
28
Vacuum cleaner (canister)
23
Washing machine (top-loading)
22
Dishwasher
21
Refrigerator: top- and bottom-freezer, w/ icemaker
20
Gas range
20
Wall oven (electric)
19
Push mower (gas)
18
Cooktop (gas)
17
Microwave oven (over-the-range)
17
Clothes dryer
15
Camcorder (digital)
13
Vacuum cleaner (upright)
13
Refrigerator: top- and bottom-freezer, no icemaker
12
Range (electric)
11
Cooktop (electric)
11
Digital camera
10
TV: 30- to 36-inch direct view
8
TV: 25- to 27-inch direct view
6
Source: Consumer Reports National Research Center, 2006 Product Reliability Survey
How much?

This holiday season,
shoppers spent $1.6
billion on extended
warranties for laptops,
flat-screen TVs, other
electronics, and
appliances
WHAT IS NOT COVERED
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This Plan does not cover damage caused by:
accidental or intentional physical impact, misuse or
abuse
fire, spilled liquids, battery leakage, exposure to weather,
earthquake or Act of God
failure to provide manufacturers recommended
maintenance or to operate in accordance with
manufacturers instructions
improper use or failure of any electrical source
(including without limitation power surge)
Source: Staples
Profit I
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The margins on extended warranties are in the
range of 50 to 60%.
This means that 50 cents out of every dollar
goes to the retailer and 50 cents goes to the
insurance company who actually insures the
product. Of that 50 cents, 30 cents goes to pay
claims and 20 cents is to administer the
transaction and provide the insurer with a profit.
Profit II

In a Business Week article published in 2005 the
magazine, using numbers from company reports
and industry sources, estimated that extended
warranties, accounted for all of Circuit City's
profits and 45% of Best Buy's income. (Best
Buy Co. is the largest consumer electronics
retailer in Canada and owns the Best Buy and
Futureshop chains.)
Profit Graph
Dell Inc. Product Warranty Claims
Extended Warranty Revenue in $
millions per Quarter
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Blue Extended Warranty
Red Product Warranty
Source: Warranty Week from SEC data
Why bother??
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If you bought the camera
with Visa or a similar
payment method, you also
get another year of warranty
free from them.
Why does Visa give you such
a "generous" offer? Because
it doesn't cost them much to
provide it, since very few
gadgets have defects that
show up after one year, but
before two years.
Things you are betting on the
extended warranty
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Future Shop will still be
in business.
You will have not lost
your receipt.
You have not broken it.
You have not lost it.
and it will break between
one and four years from
now.
Typical Repair Rates and Service Plan Prices
for 12 Types of Consumer Products
Consumer Repair
Service Plan
Price Quote
Price Range
$325
$69 - $200
$255
$50 - $200
Lawn tractor
$255
$130 - $300
Desktop computer
$275
$60 - $160
Washing machine (front loading)
$300
$50 - $130
Self-propelled mower
$125
$40 - $70
Vacuum cleaner (canister)
$70
$30 - $52.50
Washing machine (top-loading)
$200
$50 - $130
Dishwasher
$185
$50 - $130
$225
$50 - $120
Gas range
$225
$50 - $80
Plasma TV
$650
$200 - $400
Product
Laptop computer
Refrigerator: side-by-side, with
icemaker and dispenser
Refrigerator: top- and bottomfreezer, with icemaker
Source: NEW Customer Service Companies Inc.
Exceptions I
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In Consumer Report magazine's January 2005
issue, the consumer protection organization lists
two consumer electronic products where buying
an extended warranty might make sense:
Apple computer
plasma televisions and
laptop computers.
It is because these products have a higher rate
of failure and/or can be very expensive to
repair.
Exceptions II
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According to the magazine, the repair rate for
laptops is 33% during the first three years of
ownership.
Interestingly the repair rate for desktop PC's was
higher than laptops at 37% but repair costs are
much lower.
Projection televisions had a three year repair rate
of 16%, camcorders at 11%, digital camera's at
8% and Direct View televisions at 5 to 7%.
How to beat ‘electronic deflation’?
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According to Moore’s Law, the processing power of
computer chips will double approximately every 18
months.
Buy an MP3 player + 2 year extended warranty.
Break MP3 player when Future Shop runs out of these
players.
Ask if you can fix it, and wait for few weeks to
exchange it for the same player.
You already know they have no more of them so you
wander around and go back to the customer service
desk with the new one you want.
How to beat ‘electronic deflation’?
(Con’t)
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Now you get to exchange your broken one for a new
MP3 player equal to the value of the broken MP3
player when you bought it. You can pay for the
difference if the new one cost more.
If you exchange it within a year, you can even transfer
the remaining time on your extended warranty to the
new player.
Now, you can keep the value of the MP3 player for 2
years, with the extended warranty. You can save the
price difference of the MP3 player caused by ‘electronic
deflation’.
References
 Digitalhome
http://www.digitalhome.ca/index.php?option=com_content&task=view
&id=110&Itemid=34

Excalibur----York University’s Newspaper
http://www.excal.on.ca/index.php?option=com_content&task=view&
id=1246&Itemid=2
 Staples
http://www.staples.ca/ENG/Static/static_popups.asp?CT=1&pagename
=services_esp
 Warranty Week
http://www.warrantyweek.com/archive/ww20041109.html
END