Arnie looked at the cracked screen of his Apple iPhone 12 in dismay. He dropped the phone just as he was about to put a new protective case on the device. He cursed himself for not adding Apple care to this purchase.
Extended warranty is one of the ways purchased products are protected and according to Allied Market Research, the extended warranty market is expected to grow by a CAGR of 7.4% to USD 169.82 billion in 2027. Customers want product protection depending on the nature of products and e-commerce businesses need to consider this as a part of the consumer experience and product strategy. For example, the likelihood of online consumers buying electronics such as set top streaming boxes, gaming consoles, smart TVs increases by 21% and more when extended warranty is offered.
Product protection can cover repairs, replacements and additionally accidental damage at different levels of premiums. Some protection plans are offered by online and offline retailers such that they come into effect after the manufacturer warranty expires. An example of an online and brick & mortar retailer known for offering extended warranty and good service coverage is Best Buy. Retailers also offer pricing protection where they give guarantees to consumers that they will match the lowest price found by the consumers for a limited time period.
There are several advantages for online retailers to consider and offer product protection :
1) Additional protection - Options for extended warranty assuages the fears of consumers that their issues can be resolved in case anything occurs to the products they enjoy.
2) Resolution of issues - In present times, most manufacturers are prompt in resolving product issues as their reputation is on the line. However, the average manufacturer warranty period has gotten shorter, which is where the online retailer can offer extended warranty from their end.
3) Increase in conversion rates - For higher priced products and as mentioned above, technical products like consumer electronics or consumer durables, product protection increases conversion rates of online purchases.
4) Increase in consumer experience and loyalty - Whether the online retailer bundles product protection along with the product price or offers as an additional option, studies have shown that product protection improves consumer experience and loyalty increases when online retailers quickly resolve any issues under the product protection plan. “Roughly 50% of consumers say they would switch to a new brand after just one bad experience, and that goes up to nearly 80% after multiple bad experiences”. This also helps in differentiating the business from its competitors and becomes crucial to gain or sustain market share. The consumer experience is now easily verified with the popularity of social media and product review platforms.
5) Additional revenue stream - Last and most importantly, product protection is an additional stream of revenues as in most cases, online retailers earn more than they incur in repairs and replacements of products.
There are some pitfalls to product protection which online retailers need to be wary of and mitigate.
1) Planning and implementing product protection plans require time, effort, money, awareness of consumer laws, and depend on the products being offered. E-commerce businesses need to assess the risks and conduct a cost-benefit analysis. In the case of extended warranty being offered by the online retailer, the business may have to set up strategic locations for carrying out repairs or replacements if manufacturers do not have a well established presence in the country
2) Advertising protection plans frequently may send a message to consumers that the product’s quality may be poor therefore product protection is being emphasized by the seller. It may also seem like a cheap marketing ploy to the consumer and sows the seeds of distrust. This typically occurs for passenger vehicles where online dealers try to lure consumers with ‘special’ types of warranties in order to differentiate themselves from the competitors. It can become a race between competitors which can frustrate online consumers. Despite the disadvantages, some prominent online retailers have utilized product protection effectively to create and sustain a loyal consumer base. An alternative to product protection would be guarantees, such as ‘try before you buy’, lifetime, money-back and others. What’s important is that e-commerce sellers understand the online consumer’s behaviour for their products and implement an appropriate strategy that will ensure a smooth, repeatable and mutually beneficial consumer experience.
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