Understanding the Difference Between Extended and Manufacturer Warranties
By Tom Scott, Vice President of Business Development, Consumer Products at Fortegra
Generally defined, a warranty is a contract between a company and a consumer in which it’s agreed that the company will replace or repair a consumer’s purchase if it breaks within a specific time period. Structured as such, all warranties basically point toward a similar goal with advantages that vary depending on industry and coverage.
From a consumer products perspective, there are two types of warranties that dominate the industry: manufacturer warranties and extended warranties. Though these warranties differ greatly, each offer substantial benefits for both consumers and retailers.
Manufacturer warranty: automatically included
Otherwise referred to as “limited warranties,” manufacturer warranties are automatically bundled with the purchase of a manufacturer’s product. What makes them “limited?” Manufacturer warranties are only viable for a very specific window of time following the product purchase date. Generally, this time frame ranges from 90 days to an entire year with coverage offered as a product replacement plan rather than a complete repair option. Terms and conditions are exclusively outlined by the manufacturer, including customer rights, manufacturer responsibilities, and defined scenarios when a product would qualify for replacement or repair.
Extended warranty: longer periods of protection
Intended to lengthen the coverage period, extended warranties are designed similarly to manufacturer warranties—with a few differences. These warranties are often known as “service contracts,” and are available from the retailer at the point of purchase. Unlike manufacturer warranties, extended warranties are not automatically attached to products and require an additional fee to utilize their offerings. Additionally, while extended warranties protect a product for a longer period of time, they do not extend the terms and conditions put in place by the original manufacturer. Instead, they typically carry additional or updated terms to ensure the benefits of extended protection.
Value for retailers
Additional protection sounds great for consumers—but how do warranties benefit retailers? For starters, these warranties can create additional lines of revenue. Whether extended or manufacturer coverage, retailers can implement a repair center, receive service authorization from the warranty firm, and enjoy the extra revenue created by incoming customer repairs.
Warranties can also encourage consumer spending, helping boost a retailer’s bottom line even further. With the knowledge that their investment will be protected long term, consumers tend to be more willing to make pricier purchases. Lastly, the peace of mind gained from the addition of warranty protection can help improve customer loyalty and reduce complaints, increasing the potential for repeat business.
Value for consumers
In addition to the peace of mind provided by the promise of protection, warranties offer consumers cost savings as well. Unexpected costs can put consumers in a tough financial situation, but warranty protection can help offset those costs. Also, extended warranty firms can connect consumers with local providers who have the ability to repair products without the need for shipments or long-distance travel. Combined, it’s the kind of coverage consumers are looking for—particularly when applied to today’s expensive technologies.
Considering the above factors, it’s clear that warranties create value for consumers and retailers alike. From consumer peace of mind and long-term cost savings, to additional lines of retail revenue and increased customer trust, warranties are worth every penny.
Tom Scott is Vice President of Business Development, Consumer Products at Fortegra where he cultivates strategic relationships by offering service contract, warranty and insurance solutions to clients in the global consumer product marketplace. An honor society graduate of the University of Utah with an MBA from Westminster College, Scott is also a recent recipient of a Business Innovation & Entrepreneurship Certificate from Stanford University.
