October 24, 2006 |
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 CameraLet'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 |
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% |
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
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.
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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 | ||
More Warranty Headlines below |
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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 | ||
More Warranty Headlines below |
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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) | ||
More Warranty Headlines below |
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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 | ||
More Warranty Headlines below |
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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 | ||
More Warranty Headlines below |
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