Spending on product warranties targeted
As more expensive and complicated products hit the shelves, consumers will spend $1.6 billion on extended warranties for big-screen televisions and appliances this holiday season, an industry expert says.
To consumers, the warranties often mean peace of mind and a way to avoid big repair bills. But to consumer advocates, they are often an expensive waste of money.
Robert Mitchell of Kean, N.H., a national correspondent for Computer World, recently bought extended warranties for two cellphones. But he canceled the warranties when he realized the premiums cost more than a used phone.
“It really didn’t make sense to purchase a warranty,” he said. “But I did it because of fear, uncertainty and doubt.”
This year, consumer advocates are waging a war against the industry behind the warranties, which usually guarantee that they will fix or replace a product over a certain amount of time. The cost usually depends on the cost of the product.
“We think extended warranties are almost always a big rip-off for consumers,” said Kim Kleman, deputy editorial director of Consumer Reports. “But it seems like every year, Americans are shelling out more and more money for them.”
Consumer Reports is embarking on an e-mail campaign and taking out a full-page ad in USA Today warning shoppers to beware.
The consumer group says products rarely break within the warranty window, and even when they do, the cost of the repairs is about the same as the cost of the warranty. Kleman said that products didn’t break as often as consumers expected. For example, Consumer Reports research shows that only 10% of 3-to-4-year-old digital cameras ever need repairs.
But industry observers say that despite the warnings, consumers will keep buying the warranties.
As more high-tech products hit the shelves, they say, consumers can’t seem to help investing a little extra money as insurance in case the product breaks.
Shopping at Circuit City, Marina Leselias, 34, of Hollywood, says she always buys warranties for products that cost more than $400.
She said it recently paid off when she had problems with her digital camera. Circuit City tried to fix it, but couldn’t, and it replaced the camera free of charge. “You never know what could go wrong at home,” she said.
The more complicated the product, the more customers are likely to go for warranties, experts say.
“Anytime you talk about technology like plasma screens, the consumer perceives risk,” said Eric Arnum, editor of industry publication Warranty Week. “They eliminate risk by purchasing insurance” in the form of warranties.
Stores have an incentive to push warranties too: Arnum expects $7.5 billion to be spent this year, including $1.6 billion over the holidays, on extended warranties for consumer products. Retailers usually retain half of this sum, he said.
Target Corp. began to offer extended service plans for its consumer electronics products “because of guest demand for increased service coverage on major electronics purchases,” according to a company statement. Wal-Mart Stores Inc. began to offer similar warranties last year.
Best Buy Co. defended the warranties, saying in a statement that they were for “customers who want the peace of mind, security and convenience that comes with knowing their products are covered.”
The warranty industry is growing because of customers who are “less confident they are able to deal with failure in the product,” said Amar Cheema, a marketing professor at Washington University in St. Louis.
Yet research suggests that consumers who are less accustomed to buying electronics products may opt for warranties more often.
“You buy a warranty if you know you are going to mess it up,” said Ali Reda, 21, of Los Feliz. He recently bought a stereo system, but he passed up the warranty, figuring he didn’t need one. “I don’t trust them,” he said.
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