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Have you ever wondered why most companies offer extended warranties (service contracts) for the products they sell? Do they already know that something is going to go wrong with your product or do they know everything will be well with it and they are just looking for easy profits?
Personally, I like to categorize "extended warranties" as an upsell.
Let's pretend you've just spent three days searching for the perfect dishwasher. It has more features than you'll ever use. You bargained for the best price known to man and you are ready to make the purchase.
Then comes the upsell. "For $99.00 more, we'll warranty that dishwasher for you for three years and it will take care of all parts and labors," says the salesperson.
The pressure is on now. What if I say no and something breaks down? But I just spent three days negotiating the price and I'm saving about $99 from my efforts. Now they want that money back in exchange for a service contract. Oh, what should I do?
If this has ever been your dilemma, read on:
With most appliances and particularly electronic items, defects will show up before the original warranty expires. After that time frame, and during the service contract, most repairs cost less than the service contract. Once the contract expires, you'll find that once again, the more expensive repairs will occur.
Now if the retailers know this, why does the sales force push so hard to make the contract sale? I'll tell you why! It is because there are huge profits and sales commissions in these service contracts.
Retailers and manufacturers have spent considerable time researching their products and know for the most part, what components break down and when. With this important data, they can price the service contracts and terms accordingly to maximize their own profits.
Whatever you decide to do when being offered a service contract, at least make an informed decision and ask these four questions:
1. What is the original warranty time frame?
2. What does this warranty cover?
3. What does the warranty not cover?
4. How much does the additional service contract cost?
If you get answers to the above questions, you'll at least be able to make a more informed decision and hopefully the right one for your family and your finances.
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