Warranty: Making Sense of Short-Term ESPs
"If you try to sell a monthly billed warranty, at some point, the consumer's going to say, 'Why am I paying this fee?' and he will stop after six or seven months because the product's still working great. I think if you don't sell the long-term warranty and get paid for it up front, there's buyer remorse as time progresses," he said. "The other thing about warranties is that there is usually no breakage at the early stage. A guy buys a warranty, and once it's bought and the product is still working, he forgets he bought it. But to have to pay it every month?"
Bruce Saulnier, president of AMT Warranty, whose company's shortest ESP warranty term is one year following a minimum 90-day manufacturer's warranty, said that AMT offers monthly warranty billing for its home warranties and for products that come with monthly billing statements, such as cell phones. But for standard CE products, he said consumers "are searching for longer protection periods, not shorter, given the greater likelihood of product failure and ROI of the ESP purchase in the longer coverage terms."
He also reasoned that, for standard CE products, short-term or monthly billed warranties would not serve retailers in the long run, because "the cost to sell an ESP, whether 90 days or three years in term, is about the same. However, revenues and margins are significantly higher in the longer-term periods, producing a better ROI for retailers to sell the longer-term periods.