October 24, 2006
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ISSN 1550-9214         

Extended Warranty Pricing:

Retailers charge a premium of anywhere from 1.2% to 36% for a Canon EOS 30D extended warranty, and anywhere from 5.6% to 43% for a Panasonic 42" plasma TV service plan. With Target now entering the market, service plan prices will be under increasing pressure.


Last year it was Wal-Mart Inc. that jumped into the extended warranty arena with some aggressively low contract prices. This year, it's Target Corp., and these prices are so low it's going to be extremely hard for consumers to say "no."

For electronics items priced at $1,000 and up, Target will charge only $79 for a three-year extended warranty. Three-year service plans for electronics items priced between $500 and $1,000 will cost $59. Anything between $200 and $500 will have three-year service plans for $29. And electronics priced under $200 will have three-year service plans available for $19. How they'll make money at those price points is a sticky question. But at least they'll make some headlines.

Target Starts a Price War?

A reporter called Warranty Week last week, and asked a simple question: "How much do extended warranties generally cost?" Well, generally, they're usually around 10% to 25% of the product's price, depending upon the product, the retailer, and the length of the contract. But actually, they can be anywhere from 1.2% to 43% of the product's retail price, which is to say they're all over the place.

Extended warranties aren't usually sold that way, though. A consumer would have to be pretty good at math to figure out percentages in their head while listening to a salesman make his pitch. And it's not the price of the contract that's at issue. It's the cost of an out-of-warranty repair if there's no service plan. So it's not how much extra it costs to buy. It's how much it will save if there's ever a need for a repair.

So we thought we'd do some shopping, to see exactly how much variance there really is in the extended warranty market. We wanted to compare apples to apples whenever possible, so we selected two popular items and shopped all over the Web and the New York metro area for them. We selected the Canon EOS 30D digital camera and priced it bundled with the most common accessory, the EF-S 18-55mm lens. And we selected the Panasonic TH-42PX60U 42" plasma TV with a built-in tuner. Both products have a one-year warranty, so we shopped for two-, three-, four-, and five-year extended warranties.

To calculate the relative cost of these extended warranties in percentages, it was of course necessary to collect pricing information for the products themselves. We ignored sales tax, because including it would have skewed the percentages downward for all the New York-based retailers (Warranty Week is also located in New York). And, we ignored shipping costs, where applicable, even though for some retailers this seems to be something of a money-maker on its own. And, particularly for the plasma TV, we ignored installation costs, which again is a money-maker on its own, and is strongly recommended as an additional purchase. The net effect is that some of these prices are less than realistic, and therefore some of these percentages are higher than actual.

Shopping for a Canon Camera

Let's start out with the camera. As the following graph details, we found no discernable pattern to the extended warranty prices, except that at the same store the longer contracts always cost more than the shorter ones. At Canoga Camera, we found a two-year extended warranty priced at $20 for a $1,630 camera, and a four-year deal priced at $42.

That's considerably less than Target's $79 deal, but it's actually the highest camera price of the 41 retailers surveyed. And, come to think of it, Target's $1,500 camera price was the second-highest found. So, even if you get a deal on the extended warranty, you pay more for the product it covers.

At the other extreme, we found Abe's of Maine selling the Canon EOS 30D for only $1,128, but a three-year extended warranty was priced at $400. Etronics.com also wanted $400 for an extended warranty, but its camera price was a little higher, so as a percentage it was lower.

In the graph that follows, all the two-year warranties are blue dots. All the three-year warranties are orange dots. All the four-year warranties are bright green dots. And all the five-year warranties are hot pink dots. As we noted, there's no discernable pattern, though there is a sizeable cluster between 5% and 15%.

Figure 1
Extended Warranties on a
Canon EOS 30D with an EF-S 18-55mm lens

Canon EOS 30D

There wasn't enough room on the chart to label all the dots, so what follows are four tables of the actual data, ranked in ascending order by the cost of the extended warranty calculated as a percentage of the camera's purchase price. Not every retailer sells the 30D (in fact, P.C. Richards and Sears sell nothing close to it). For PC Nation and Clickfordigital.com, we shop for the EOS 20D, which is close in both price and features. And not every retailer offered every contract period -- in fact only OneCall.com, the online arm of Huppin�s Hi-Fi, Photo & Video of Seattle, offered two-, three-, four-, and five-year extended warranties on the camera. Only PC Super Deals and Electronic Express offered three different choices of extended warranty periods. Most offered only one or two.


Table 2
Two-Year Extended Warranties on a
Canon EOS 30D with an EF-S 18-55mm lens

  Retailer   Camera Price     Service Plan
  Canoga Camera $1,630 1.2%
  Electronic Express $1,500 2.0%
  CompUSA $1,300 3.8%
  Staples $1,200 4.2%
  Circuit City $1,500 5.3%
  Adorama Camera $1,250 5.6%
  OneCall $1,500 6.7%
  Crutchfield $1,400 7.1%
  Buy.com $1,356 7.6%
  Newegg.com $1,146 7.9%
  PC Rush $1,226 10%
  PC Super Deals $1,400 11%
  Dell $1,275 11%
  Tiger Direct $1,200 12%
  PC Universe $1,492 12%
  Ritz Camera $1,400 16%
  Wolf Camera $1,400 16%
     

Of course, although the cameras are the same, the extended warranties are each somewhat different. But we'll leave those differences to the salesmen to explain, because really, the only two questions the consumer has to answer after buying the camera is 1) yes or no and 2) how many years. There really is no competition within the store between different brands of extended warranties, although some retailers do sell the policies of different administrators for different product lines.

As Figure 1 suggests, three-year warranties are by far the most commonly offered. Only nine of the 41 retailers didn't offer contracts with this period. And of the 32 retailers that did offer three-year plans, 11 are on the two-year list above, and three are on the four-year list below.


Table 3
Three-Year Extended Warranties on a
Canon EOS 30D with an EF-S 18-55mm lens

  Retailer   Camera Price     Service Plan
  Electronic Express $1,500 2.3%
  Vann's $1,400 3.6%
  Target $1,500 5.3%
  Norman Camera $1,500 5.3%
  Wal-Mart $1,300 6.1%
  17th Street Photo $1,275 6.3%
  B&H Photo $1,260 6.3%
  PC Nation $1,169 6.8%
  Digitalfotoclub.com $1,308 7.6%
  Beach Camera $1,149 7.8%
  BuyDig.com $1,149 7.8%
  J&R $1,150 8.7%
  OneCall $1,499 10%
  H1Photo.com $1,375 11%
  Buy.com $1,356 11%
  Crutchfield $1,400 11%
  Tri-State Camera $1,130 12%
  Willoughby's $1,439 13%
  42nd Street Photo $1,170 13%
  Newegg.com $1,146 13%
  Butterfly Photo $1,122 13%
  PC Universe $1,492 13%
  PC Super Deals $1,400 14%
  Tiger Direct $1,200 14%
  Clickfordigital.com $1,239 16%
  Dbuys.com $1,239 16%
  Central Digital $1,227 16%
  Ibuydigital.com $1,224 16%
  Etronics.com $1,225 24%
  Ritz Camera $1,400 33%
  Wolf Camera $1,400 33%
  Abe's of Maine $1,128 35%
     

In some cases, the extended warranties run concurrently with the manufacturer's warranty. In other cases, the extended warranty runs consecutively and doesn't begin until the manufacturer's warranty ends. In the latter case, we added a year to the extended warranty period, because the Canon EOS 30D has a one-year warranty. So if it's a two-year extended warranty that runs consecutively, we called it a three-year warranty, because in this instance it ends three years after the purchase.


Table 4
Four-Year Extended Warranties on a
Canon EOS 30D with an EF-S 18-55mm lens

  Retailer   Camera Price     Service Plan
  Canoga Camera $1,630 2.6%
  Wal-Mart $1,300 9.1%
  Circuit City $1,500 9.3%
  Best Buy $1,500 10%
  OneCall $1,500 11%
  PC Rush $1,226 13%
  Datavision $1,399 14%
  PC Super Deals $1,400 17%
  Dbuys.com $1,239 24%
     
We found only eight retailers offering four-year warranties and only 11 offering five-year warranties. One would think they would have higher prices than the three-year warranties, and within the same store they always do. But as a quick look back at Table 3 reveals, the highest percentages don't accompany the longest extended warranties among all retailers.

Table 5
Five-Year Extended Warranties on a
Canon EOS 30D with an EF-S 18-55mm lens

  Retailer   Camera Price     Service Plan
  Electronic Express $1,500 4.0%
  Vann's $1,400 5.7%
  PC Nation $1,169 11%
  OneCall $1,500 13%
  J&R $1,150 13%
  42nd Street Photo $1,170 17%
  Butterfly Photo $1,122 22%
  Willoughby's $1,439 23%
  Central Digital $1,227 24%
  Ibuydigital.com $1,224 25%
  Etronics.com $1,225 33%
     

We're not going to try to derive any medians, means, or standard deviations from this data, because we have no information about who sells the most units. But if we had to hazard a guess, like we did with that reporter last week, we'd pick three years and 10% as our benchmarks for digital camera extended warranties.

Heavy Lifting

The Canon EOS 30D weighs only five pounds, so shipping costs are not much of a factor. Anyone asking for more than $10 for ground shipping is trying to make some extra income. With plasma TVs, however, the weight of the units has an effect not only on shipping cost, but also upon warranty terms and conditions. The best warranties and extended warranties will allow for in-home repairs. The better warranties will send somebody out to pick up the unit and package it up properly. The really bad warranties will give you a box and the address to mail it to, and they'll expect you to pay the postage in both directions. We're not saying that all inexpensive plasma TV warranties are bad, but beware of bargains! There really is a qualitative aspect to these service plans as well as the quantitative aspects we're analyzing in this column.

As in the graph above, in Figure 6 all the two-year warranties are depicted by blue dots. All the three-year warranties are orange dots. All the four-year warranties are bright green dots. And all the five-year warranties are hot pink dots. While there's no discernable pattern, there does seem to be a sizeable cluster between 15% and 25%.

Figure 6
Extended Warranties on a
Panasonic TH-42PX60U 42" Plasma TV

Panasonic plasma TV

We found 36 retailers selling the Panasonic model at prices between $1,355 and $1,955. Again, we ignored sales tax and shipping costs, which in this case may have significantly affected the outcome. If enough readers complain, perhaps we'll go back and calculate the unit prices again. The extended warranty prices, however, would be the same in either case (except in states that charge sales tax on service plans).

There were only seven retailers selling two-year plans for this particular model, and five of them also sold three-year plans. Some of the blue dots in Figure 6 are obscured by nearby dots, so here's the full list:


Table 7
Two-Year Extended Warranties on a
Panasonic TH-42PX60U 42" Plasma TV

  Retailer   TV Price     Service Plan
  OneCall $1,700 12%
  Tiger Direct $1,800 12%
  123buydirect.com $1,799 14%
  PlasmaBay.com $1,423 16%
  CompUSA $1,890 16%
  Howard Pierce's $1,800 19%
     

Howard Pierce's, by the way, is our abbreviation for Howard Pierce's Direct Audio Video, which uses the URL hpdirectav.com. For a moment we thought perhaps Hewlett-Packard had started selling Panasonic, much like Dell sells Canon and many other brands. But no, HP is using the URL shopping.hp.com, so the only confusion is ours.

As with the Canon camera, the most popular extended warranty period for the Panasonic TV is three years. Only eight of the 36 retailers didn't offer it. And, as Table 8 details, this is the big win for Target, which charges only $79 for a $1,400 TV's extended warranty.


Table 8
Three-Year Extended Warranties on a
Panasonic TH-42PX60U 42" Plasma TV

  Retailer   TV Price     Service Plan
  Target $1,400 5.6%
  Beach Cameras $1,695 11%
  BuyDig.com $1,695 11%
  J&R $1,700 11%
  B&H Photo $1,600 11%
  Datavision $1,699 12%
  Advanced Video and Sound $1,589 13%
  LCDTVs.com $1,640 14%
  TV Authority $1,355 14%
  Wal-Mart $1,348 15%
  Tiger Direct $1,800 16%
  OneCall $1,700 16%
  Plasma Concepts $1,595 17%
  Butterfly Photo $1,420 18%
  Circuit City $1,800 18%
  Central Digital $1,395 18%
  Ibuydigital.com $1,395 18%
  Drplasma.com $1,510 19%
  Monitor Outlet $1,858 19%
  123buydirect.com $1,799 19%
  PlasmaTVs.com $1,786 20%
  Abe's of Maine $1,435 21%
  Sears $1,995 21%
  dbuys.com $1,595 22%
  Howard Pierce's $1,800 22%
  MyDigitalUniverse.com $1,599 25%
  Newegg.com $1,600 25%
  Crutchfield $1,900 26%
     

For at least this product, the peak prices for extended warranties came along with the longer contract periods. Crutchfield wants $800 for a five-year service plan, as opposed to a mere $500 for a three-year plan. Etronics.com wants $650 for a four-year plan on a $1,520 TV.

The price leader in the four-year category is Best Buy, both in dollar and percentage terms. It asks only $250 to cover an $1,800 unit for four years, which to us sounds like a -- pun intended -- best buy. One would really have to enjoy living with risk to turn down such an offer. And maybe that's the point: there's a price, whether it's a Target price or a Best Buy price or a Wal-Mart price, at which an extended warranty becomes a compelling offer, especially for a heavy and fragile item like a plasma TV. Overpriced? Maybe at $800, but not at $250. Or in this case, maybe at 42% additional, but maybe not at 14%.


Table 9
Four-Year Extended Warranties on a
Panasonic TH-42PX60U 42" Plasma TV

  Retailer   TV Price     Service Plan
  Best Buy $1,800 14%
  Digital1234.com $1,459 17%
  Drplasma.com $1,510 20%
  42nd Street Photo $1,600 21%
  clickfordigital.com $1,444 21%
  CompUSA $1,890 21%
  OneCall $1,700 21%
  Wal-Mart $1,348 22%
  123buydirect.com $1,799 25%
  ABT Electronics $1,698 29%
  etronics.com $1,520 43%
     

Five-year warranties are a little more common than four-year plans, which if you think about it flies in the face of expectations (and sales pitches). For if these plasma screens really are more fragile than tube TVs and also more expensive to fix, why would so many retailers be willing to insure them for five years?

The answer, of course, is that a few administrators such as Warrantech and Service Net Solutions are willing to take the risk, and they charge accordingly. But even they differ in their visions. In Table 10, Warrantech backs the two retailers with the lowest percentages, and Service Net backs the two with the highest percentages. Ironically, they're now both owned by the same holding company.


Table 10
Five-Year Extended Warranties on a
Panasonic TH-42PX60U 42" Plasma TV

  Retailer   TV Price     Service Plan
  J&R $1,700 14%
  TV Authority $1,355 17%
  LCDTVs.com $1,640 18%
  Monitor Outlet $1,858 22%
  Drplasma.com $1,510 23%
  Plasma Concepts $1,595 24%
  Butterfly Photo $1,420 25%
  Central Digital $1,395 25%
  Ibuydigital.com $1,395 25%
  Advanced Video and Sound $1,589 25%
  Circuit City $1,800 28%
  Abe's of Maine $1,435 28%
  dbuys.com $1,595 31%
  Howard Pierce's $1,800 33%
  123buydirect.com $1,799 33%
  PlasmaTVs.com $1,786 34%
  MyDigitalUniverse.com $1,599 37%
  Newegg.com $1,600 41%
  Crutchfield $1,900 42%
     

If we had to venture a guess, we'd offer three years and 20% as the benchmarks for plasma TV extended warranties. However, keep in mind that this is one of the lower-priced plasma models. We're not sure if 20% of purchase price is a good number for the really expensive units. In our television manufacturer's product warranty roundup on September 7, in fact, the 42" screen sizes ended up in the middle category. And notice that not one of these retailers is asking for more than $2,000 for the Panasonic TH-42PX60U. A few years ago, even $2,000 would have been considered a bargain.


Correction:

The extended warranty plans sold by Wal-Mart take effect after the manufacturer's product warranty expires, so what was initially listed as a two-year warranty has been moved to the three-year chart, and what was initially listed as a three-year plan has been moved to the four-year chart. Since this article was initially published, however, Wal-Mart cut the price of the Panasonic screen, which changed the percentages as well.

NEW Customer Service Companies

 

This Week’s Warranty Week Headlines

Cinderella Pontiac Solstice toy car burns up from bad wiring; family battles manufacturer.
WTOC-TV Savannah GA, October 24, 2006
Pentair increases warranty reserves in its pool and spa business and takes an earnings hit.
Press Release, October 24, 2006
Snap-on Inc. to acquire ProQuest Business Solutions from ProQuest Co. for $480 million in cash plus $19 million in debt.
Press Release, October 23, 2006
Ford loses $5.8 billion in third quarter, raises warranty accruals for Jaguar and Land Rover.
Press Release, October 23, 2006
Hyundai Motor America says it will keep its 10-year powertrain warranties through at least 2010.
Press Release, October 23, 2006
 

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SAS Institute

 

Warranty Headlines (cont’d)

Sony Computer Entertainment Europe won't honour warranty claims on grey market PS3 imports.
BBC, October 23, 2006
Extended service plan companies see no upturn as appliance manufacturers cut back on warranties.
This Week in Consumer Electronics, October 23, 2006
Home warranty insurance gives buyers confidence in British Columbia.
Vancouver Sun, October 21, 2003
Textron says Cessna profits grew thanks to higher sales and lower warranty costs.
Press Release, October 19, 2006
Provident Financial's Yes Car Credit customers hit with bills for insurance and warranty policies.
This Is Money, October 19, 2006
 

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ServiceBench for Service Administrators

 

Warranty Headlines (cont’d)

Transit system officials in Atlanta say their new Breda-made rail cars are not reliable.
Atlanta Journal-Constitution, October 19, 2006
To win customers, many automakers are looking to improve their warranty offerings
Business Week, October 18, 2006
Ford blacklists Collins & Aikman Corp. after pricing dispute leads to delivery cuts at Mexican plant.
Associated Press, October 18, 2006
Siberia's Eldorado-Krasnoyarsk Ltd. accused of fraud for selling a two-year service plan on a PC with a three-year warranty.
Newslab, October 18, 2006
Elephant Group Inc. launches home warranty operation under the brand name Liberty Home Protection.
Press Release, October 18, 2006 (PDF file)
 

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4CS iWarranty

 

Warranty Headlines (cont’d)

NHTSA reveals theft of details about Hummer H2 complaints, lawsuits and warranty claims.
Sacramento Bee, October 17, 2006
AES Corp. seeks $40 million from France's Alstom SA in a warranty dispute over a power plant in Puerto Rico.
Caribbean Net News, October 17, 2006
Volkswagen says Lamborghini's warranty costs are plummeting.
Belfast Telegraph, October 17, 2006
Photon Dynamics lowers earnings outlook after incurring additional warranty expenses.
Press Release, October 17, 2006
Target to begin offering extended service plans for its consumer electronics products.
Press Release, October 16, 2006
 

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Warranty Headlines (cont’d)

AIADA's list of warranty periods for autos, powertrains, rust protection, and roadside assistance.
AIADA News, October 16, 2006
Second Infinity PCS Inc. service center to do warranty work for Motorola mobile phones.
Press Release, October 16, 2006
Attensity to support the new IBM Information Server for text analytics.
Press Release, October 16, 2006
National Warranty Insurance Group liquidators place ad seeking claims in USA Today.
Lincoln Journal Star, October 13, 2006
Macrae & Dick blames collapse of MG Rover Group for rise in costs and fall in revenue.
The Herald UK, October 13, 2006
 

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AMT Warranty Corp.

 

Warranty Headlines (cont’d)

MasterLink Group Inc. to provide Internet marketing solutions for The Auto Club.
Press Release, October 13, 2006
Microsoft lengthens Windows Vista operating system warranty from 90 days to one year.
Information Week, October 12, 2006
Toyota Motors Viet Nam lengthens warranties from 2 years/50,000 km to 3 years/100,000 km.
Viet Nam News, October 12, 2006 (third item on page)
Ford finds cold weather latch freezing pattern in Montego and Freestyle after examining warranty data.
Daily Southtown, October 12, 2006
Ford Motor Co. may sell Automobile Protection Corp., its extended warranty subsidiary.
Associated Press, October 11, 2006
ServiceMaster blames heat and inflation for increased claim costs at American Home Shield.
Memphis Business Journal, October 11, 2006
Taking an iPod above 10,000 feet may ruin the hard drive and void Apple's warranty.
KRDO-TV Colorado Springs, October 10, 2006
Carrier faces lawsuits in Canada and Wisconsin over corroding heat exchangers.
Associated Press, October 10, 2006
Craftmatic to pay $570,000 to settle fraud charges in West Virginia.
Consumer Affairs, October 10, 2006
Low-cost Asian brands are just as reliable, but extended warranty companies say repairs are plagued by parts shortages.
This Week in Consumer Electronics, October 9, 2006
Whirlpool named as finalist in the Computerworld "Best Practices in Business Intelligence" awards program.
Press Release, October 9, 2006
BenQ Mobile Holding said to be insolvent, leaving partner Siemens with its warranty liabilities.
Heise Online, October 9, 2006
Arizona Supreme Court rules against car leaseholder in warranty case brought against DaimlerChrysler.
Press Release, October 9, 2006
Croma electronics chain in India to sell extended warranties in association with Tata AIG General Insurance.
Express Money, October 9, 2006
GM's VP of quality says recalls are down 65% in the last two years and warranty claims are down 40% in the last five years.
Chicago Tribune, October 8, 2006
What's a warranty worth? Video from GM says the quality gap is closing.
Medialink, October 7, 2006 (video)
Mapfre Praico acquires extended warranty insurers Auto Guard Inc. and Profit Solutions Inc. in Puerto Rico.
Business News America, October 6, 2006
J.D. Power and Associates finds problems increasing for heavy-duty truck engines.
Press Release, October 5, 2006
Counterfeit mobile phone batteries sold openly in Dubai marketplace.
Electronics Channel News, October 5, 2006
BuilderMT launches home warranty management software module.
Press Release, October 5, 2006 (PDF file)
Grand jury in Boston begins criminal probe of fatal Big Dig tunnel collapse.
Associated Press, October 4, 2006
SAS Institute previews its Service Intelligence Suite at AberdeenGroup's Chief Service Officer’s Summit.
Press Release, October 3, 2006
Joplin, MO still in the running as the site of a planned Cross Country Home Services call center.
Joplin Globe, October 3, 2006
Harbour-Felax Group study estimates Toyota's warranty costs at $348 per vehicle, while GM's is $512, Ford's is $585 and Chrysler Group's is $595.
MarketWatch, October 2, 2006
Fujifilm Canada lengthens warranties on digital cameras to three years.
Press Release, October 2, 2006
Seagate positions Maxtor disk drives as its new midrange offerings, with shorter warranties.
Press Release, October 2, 2006
Honda (UK) lengthens the warranty on all new Honda generators from two to five years.
Press Release, October 2, 2006
In most cases, extended warranties don't benefit consumers.
Washington Post, October 1, 2006
Kawasaki Construction Machinery Corp. of America to use 4CS iParts to manage service parts.
Press Release, September 30, 2006
Cross Country Home Services offers homeowners one-year "WeekendSaver" service agreements.
Press Release, September 29, 2006
Panasonic agrees to replace the defective lamps found in many of its LCD projection TVs.
Consumer Affairs, September 29, 2006
Toshiba joins massive recall of Sony batteries.
Reuters, September 29, 2006
Lenovo & IBM recall rechargeable ThinkPad lithium-ion batteries manufactured by Sony Corp.
EE Times, September 28, 2006
New Kia Cee'd to have seven-year powertrain warranty and five-year bumper-to-bumper warranty in Europe.
What Car?, September 28, 2006
 

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