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Sunday, 26 March 2006

Extended Warranties: A Necessary Evil or Superior Customer Service?

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Twice

Originally published in Twice Magazine

 

I find it amusing how some retailers talk about their extended warranty program. It seems to me that they think of it as this "thing", that generates a lot of money, but no one should talk in the open about. If you have a good program, that truly takes care of the customer, then why the apprehension? Good extended warranty sales should translate to greater customer loyalty. The more satisfied the customer is, the more likely it is they will be back to shop in your store.

The next logical question is, "What makes for a good extended warranty program?" Here are some of my ideas for an extended warranty program that can achieve profitability for the retailer while offering superior service for the customer.

Are you offering the customer a comprehensive plan?

What does your plan cover? Usually a salesperson will tell me it "covers full parts and labor." I ask them what that means. They usually tell me it means "we cover parts and labor...fully." If however I say we cover normal wear & tear, dust, or power surges, I have just offered the customer something tangible. If your coverage does not include these benefits and others like them, it should. It's an easier sell when I can explain, in detail, what the plan is going to cover on the product, instead of using vague terminology. The cost may increase to add this type of coverage, if you currently do not offer it, but the additional sales would make it worth it.

How often do you train?

Increase extended warranty sales by teaching new hires the program before they get on the floor. When a new hire receives proper training on what an extended warranty is and how to sell it, they almost always succeed. Training should occur during the orientation of your new hires. It could be a worksheet, CD ROM, or training video. When interviewing a potential sales person, you should let them know they are expected to offer these plans to the customer with an expected success rate. One manager told me that during the interview he had the person attempt to sell him a plan. He is not looking not for the ideal presentation, but eye contact and their ability to communicate.

Offer a Replacement Plan on less expensive items:

A replacement plan is a great way to increase revenue. Many retailers either do not offer extra coverage on smaller, less expensive electronics, or put little emphasis on this type of program. The plan is a great way to improve customer service and remember, today's small electronics customer is tomorrow's big screen and Appliance customer. The customer could replace it in the store, (getting them back in) or you could have them mail it to the administrator to process the claim (less work for the stores). Either way the customer is thrilled because they are getting a new product. A replacement plan does not guarantee huge profits by itself. Proper price ranges must be developed based upon product mix and customer acceptance. If you can make the price attractive, simplify the procedure, and offer superior customer service, the customer will buy it.

Are your plans priced properly:

Do you price solely on margin rate and/or rate of sale? A combination is best. If you price your plans as a value to the customer, you will make your margin goal by more units being sold. Once again, the more plans you get in the customer's hands, the more likely they are to repeat the purchase or renew their plan. Pricing must be reviewed by product line. Example: For every ten VCRs you are selling 6 plans. That's obvious to me the customer sees the value. Camcorders however, you discover for every ten sold, you are only selling two extended warranties. Are you properly priced both short term and long term when you consider renewals? If you drop the price can you increase sales enough to generate incremental margin? Is it worth it?

Become a partner with your third party administrator:

TPAs are becoming a commodity in the industry. How you interact with them can make a difference in the running of your program. Constantly challenge your TPA to develop new ideas to improve your business. You will not always use their recommendations but it should keep your program on the cutting edge. Set up regularly scheduled meetings with your administrator. Have them give you status reports. Communication between the retailer and the TPA is crucial to the success of an extended warranty program.

Selling extended warranties has become integral to the success of retailers in the marketplace today. What kind of program do you have? The best program offers your customers both value andthe outstanding customer service they have come to expect from your store. The best program that builds customer loyalty, reduces returns and keeps them coming back. To me this is what having long range success is all about. A well run, successful extended warranty program is something to be proud of.

Take an objective look at your existing program. Identify the strengths and weaknesses and discover solutions to improve it. This self-analysis will help you develop a profitable program that offers your customers superior customer service.

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John F Quattrucci

John Quattrucci is Q Training Solutions, a consulting firm specializing in innovative and entertaining training. 

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