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Monday, 22 April 2013

Four Advantages of Selling Extended Service Plans

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How much of a priority is selling extended services plans to your managers and employees? We’ve found that some companies offer ESPs to their customers begrudgingly. They’ll offer them because they are told they have to or because their competitors do, but they never fully embrace the concept or the benefits. This is a costly mistake. The benefits to your company, your associates, and your customers, far outweigh the time and resources you invest in working with manufacturers, negotiating with insurance companies, and training your team how to properly present ESPs to your customers.

The return on investment of selling extended service plans includes four major benefits...

1. Selling Extended Service Plans Lowers Your Return Rate

One component of effectively reducing product returns is a robust ESP program. The selling of ESPs and reducing returns are absolutely linked.

Companies don’t like returns because they hurt the bottom line and affect customer service. Customers don’t like returns because they’re inconvenient and a hassle, not to mention that the experience of returning a product to the store puts them on the defensive. But when a customer returns a product after purchasing an ESP, they know there will be no hassle, no debate, and no hard feelings. They should be made to feel that the best decision they ever made was purchasing your plan. In many cases ESP’s offer an alternative to bringing the item back to the store at all, offering a local service center or mail-in option instead. This positive experience increases loyalty and moves the product into a services category on your P&L rather than making it an addition to your returns and decreasing net sales.

2. Extended Service Plans Improve Morale

Increasing ESP sales and lowering return rates don’t just impact your P&L and please shareholders. Associate morale improves as well. In many cases, associates in the store rarely see the ESP customers who have an issue because the customers have access to an 800-line that will resolve their problem without ever having to leave their home. When associates have fewer customer complaints to handle, they have more time to sell—and managers see an improvement in morale.

3. Selling Extended Service Plans Create Customer Loyalty

Selling an ESP is one of the easiest, quickest, and most effective ways to create customer loyalty. If you sell a five-year ESP on a product, which retailer will that customer visit for the next five years? You! They’ll be back for anything from service to parts to their next product. You’ve sold them something that benefits and protects them if they encounter a problem with their product over the next five years! They are tied to your company for that time period and beyond. In addition, when a customer buys an ESP, they’re buying the security of knowing that if anything goes wrong with their product, you’ll be there to take care of them. As a result, they feel a greater sense of loyalty to your company.

4. Maintain Economic Viability

So here’s the great news: Offering ESPs to your customers creates customer loyalty, improves customer service, improves employee morale, reduces returns, and—oh yeah, I forgot to mention, it’s profitable. Do I have your attention now?

According to the NPD Group, a market research company, U.S. consumer technology sales have declined by $4 billion since 2010. This is a huge hit that’s negatively impacted margin rates, pricing, and bottom line profit. ESPs can help make up for some of these losses in sales in two ways.

One, selling extended service plans creates profit for the company as long as you’ve priced it to maximize the margin while still making the price point attractive to your customer. More on pricing in a future blog.

Two, service plans result in satisfied customers. A properly developed and implemented program guarantees customers the same excellent service when they have an issue as when the plan was originally sold to them. Basically customers are getting tomorrow’s service at today’s prices. By treating customers right and through the proper execution of your plan, you’re able to prevent a customer disappoint, reinforce a customer’s choice to purchase from you, and make them happy they bought your ESP. A satisfied customer is a loyal one, and loyalty leads to repeat sales, referrals, and ultimately increased profits.

Extended service plans help maintain the relationship with customers after they’ve left your store with their product, and they’re a real financial asset for your company. Rather than view these plans as afterthoughts or items you “have” to sell, make them an extension of the great customer service you already provide. The result will be improved customer loyalty, a boost to employee morale, reduced returns, and strengthened economic viability.

Now that’s a win-win!

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John Quattrucci

John Quattrucci is President of Stuart & Associates, a retail consulting firm specializing in Sales and Margin Growth Programs and Returns Reduction Programs.

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