Consumer perceptions of extended warranties

Abstract

The vast majority of US consumers purchase extended warranties when buying appliances and home electronics. Retailers promote extended warranties since they have high profit margins. Consumers buy extended warranties because they seek “peace of mind and freedom from financial outlays if their purchase needs repairs”. This study examines consumers’ perceptions of the terms of an extended warranty, specifically the length of the warranty contract using a mall-intercept method to identify 101 consumers who have purchased an appliance or home electronics product in the past 2 years. The study finds that a large majority of consumers misconstrue the retailer's “4-year” extended warranty as providing four additional years of coverage beyond the manufacturer's warranty when, in fact, the “4-year” extended warranty includes the manufacturer's warranty and is, therefore, only providing 3 years of “extended” warranty protection. Marketing implications are discussed.