It’s what I’m thinking each time I buy a car based on my thorough research and careful consideration of the alternatives, only to have some dealership staff member interrupt my paperwork-signing to pitch an extended warranty. I want to feel good about my high-priced decision, not start doubting. Wouldn’t it be better for a salesman to describe the extended warranty availability as part of making the sale of the durable item? “Each alternative I’ve shown you is an excellent product which comes with a base warranty. To make your purchase decision easier, realize that an extended warranty is also available at a modest additional cost on many of the alternatives.”
Studies at University of Wisconsin-Eau Claire and University of Iowa indicate I’m on to something here. Based on their findings, the researchers say that people are more likely to purchase a warranty before committing to a product than after doing so. The explanation is that before committing to purchase, a shopper attends to potential product failure. This is part of the process of comparing alternatives and persuading themselves they’re making a good choice. But after committing to a purchase, the self-reassurance takes the form of over-representing positive aspects of the choice. The purchaser is relatively uninspired to pay extra for an additional warranty.
Knowing when to make the offer is valuable information for a marketer because extended warranty and extended service contract sales generate high profit margins. Researchers at University of Iowa and University of North Carolina–Chapel Hill report that fewer than 15% of the purchasers end up making claims which exceed the premium fee. Their studies go on to provide sales timing guidance, but on the basis of months rather than the duration of a sales transaction: Consumers are more responsive to price promotions on the warranties when the general economy is weak.
These studies also analyzed offering an extended warranty to the consumer well after the original item purchase, as the base warranty is moving toward expiration. During both weak and strong macroeconomic conditions, the price promotions are more influential when the duration of the extended warranty coverage is at least as long as the remaining time on the base warranty.
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Rethink the Timing of Reassurance
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