Here’s The Right Way To Do Extended Warranties

Aaron Hoos

Extended warranties.

They suck, right?

I should know, I sold ’em too. (Well, I sold a type of them when I was doing leases.)

Look, we all what the deal is: extended warranties are high dollar gambles that most often sit as piles of cash in a giant vault and the Scrooge McDucks that sell extended warranties just swim around in the money.

Last time I bought a laptop, I knew exactly what I wanted before going into the store. I went in, got a clerk to get me the laptop, and then braced myself for the silliness that would follow.

It was a dance: The clerk gave all the lines and I tried not to roll my eyes while I heard things like, “My customers are always glad to have it,” and “You just never know,” and my personal favorite: “more and more computers are breaking down these days.” Then I say no. Then they ostensibly go talk to their manager and come back with a slightly lower quote because they like me. Then I say no again and they wish me well and send me to the cashier.

Same thing happens when I rent a car. And when I buy one. And when I buy any major electronic equipment or appliance.

Sure, the money is good for the companies selling them but let’s face it, extended warranties are silly:

  • They are rarely needed
  • If a circumstance arises where they are needed, they are often forgotten

… they’re basically cash. And customers know it. So you either end up with a customer who begrudgingly pays, or you end up with a customer who chooses not to pay but is still annoyed anyway because they have to put up with the BS of the extended warranty sale pitch.

Every knows it’s just a bump in the price of whatever product you’re selling.

And if ever there was an opportunity for a company to innovate on the financial side of their products, extended warranties is the opportunity.

So, when I was bought a new freezer recently, I was pleasantly surprised…

I chose the freezer and braced myself for the inevitable extended warranty pitch.

I got ready to say “no” until the salesperson added: “If you don’t use it, you get 100% of it back.

That changed everything.

… If I don’t use the extended warranty, I get 100% of it back.

It works like this: I pay now for the extended warranty coverage. The freezer is covered for 3 years from all the various things that the extended warranty covers. And at the end of 3 years, if I didn’t use it, I get the money back. (Mind you, I get them money back as a store credit.)

This is a small change but it’s huge. I think it’s smart. And I think more and more companies should adopt it as a strategy to sell their extended warranties.

  • It’s still pure cash that piles up in your Scrooge McDuck vault so you can swim in it.
  • A few people will use the warranty, most won’t.
  • Those that don’t use the warranty feel like the store owes them money and will make a purchase at that store in three years.

So, this small change in extended warranties is a simple play to increase your income now but also lock in customers who will likely come back and purchase more. Because, chances are, if they have $50 or $100 or $500 that they think is owed to them by the store, they’ll purchase far more than that amount in a future purchase.

I’ve written before about how most guarantees are weak and I wished companies would give their guarantees some teeth. And this is a powerful extended warranty strategy that more companies should adopt.

 


Aaron Hoos, writerAaron Hoos is a writer, strategist, and investor who builds and optimizes profitable sales funnels. He’s the author of several books, including The Sales Funnel Bible.