The extended warranty industry. Think about it much? You should, because it’s growing fast – the global extended warranty market was valued at about $120 billion in 2019 and is projected to reach almost $170 billion by 2027. As a retailer or OEM manufacturer, it’s a market you should be leveraging digitally – and we’ll tell you how.
The growth in demand for extended warranties has been driven in part by changing consumer behaviour during the pandemic. Lockdowns and social distancing have caused a huge shift from shopping in malls to shopping online, with consumers often not dealing with human sales agents at all. In remotely spending thousands of rands on high-end electronics, appliances, beds, or cars, consumers want protective cover for their purchases that go beyond the mandatory short-term warranty. The pandemic’s economic knock-on has also led to more cautious behavior from consumers, few of whom can afford to spend money without mitigating risk.
Meanwhile, for retailers and original equipment manufacturers (OEMs), it has become much easier to meet the growing demand for extended warranties: new technology allows the warranty offer to be embedded directly into the customer journey at multiple digital touchpoints. It also automates much of the work at the back end, removing the old stumbling blocks to launching an extended warranties program – difficulties with distribution, policy management, and claims processing.
Extended warranties explained
An extended warranty – or extended service contract – is a policy that expands on and extends the mandatory limited warranty period of consumer goods significantly, covering the cost of breakdown and repair or replacement for several months or years. The warranty may be offered by a retailer, OEM, or third-party warranty provider. It may take different forms, from covering the replacement of lower-priced products to covering the repair of higher-priced ones or providing cover against particular types of damage to specific products.
According to data from Cover Genius, 59% of consumers are still not offered an extended warranty on their purchases, even though 60% report an affinity for purchasing such from the brands they know and trust”. Why is that?
Traditionally, most retailers or OEMs found the process of implementing, integrating, and managing an extended warranty program too onerous to take on. Everything had to be done manually, across multiple product types and thousands of customers – via phone calls, e-mails, Excel sheets, and even physical paperwork going back and forth between retailer/OEM and impatient customers. For the customer, it was a lot of work too, meaning that policy take-up was often lackluster, making offering extended warranties even less appealing to the retailer or OEM. For all involved, it felt like a lot of work for little reward.
Now there’s a “new normal” for extended warranty programs
- Through powerful APIs they can be digitally integrated into a company’s existing software systems within days or weeks, using specialized embedded insurance software, like ours. In the case of online retailers, integration is particularly easy, since they are already digitally driven.
- The warranty offer can be threaded directly into the purchase journey and made available on a website, through smartphone apps like WhatsApp, or even in-store via QR codes or self-service screens.
- The customer is offered the option of an extended warranty right at the point of purchase when long-term protection for their purchase is top of mind (later, it becomes an afterthought, or is forgotten altogether).
- Consumers can easily manage their own policies online, and log and track claims. Effort: out of the window.
- Data collection is automated, allowing the warranty provider to assess policy take-up and strategically adjust warranties on different products according to demand, thereby increasing revenue from take-up.
Why extended warranties?
- They encourage initial purchase. When customers have the choice of buying the same product at a similar price from two different companies, with one offering an extended warranty and the other not, they’re more likely to go with the warranty provider.
- They increase the likelihood of customers buying from you again in the future, as well as being comfortable with purchasing higher-ticket items from you since you are effectively covering the “risk” of their purchases.
- They help to improve customer satisfaction and trust, cementing loyalty to a retailer or OEM, which can set itself apart from competitors. Offering warranties gives customers the impression that you must bring high-quality products to market if you are prepared to take responsibility for their longevity.
- In short, extended warranties drive net profit, stimulate higher purchase conversion rates, and turn happy customers into repeat customers.
With global giants including Amazon, Best Buy, Apple, and Walmart all offer extended warranties you would probably want to do so too, or risk falling short competitively.
Even if you already have an extended warranty program in place, it may be lacking the digital agility and convenience the latest technology can provide …
Why digitally embedded extended warranties?
Even if you already offer extended warranties the old-fashioned way, embedding them digitally into the customer journey at multiple touchpoints will increase their visibility and accessibility, and make them easier for customers to apply for and manage – raising take-up of the offering to well above the norm.
Traditionally retailers and especially OEMs (once removed from the consumer) had very little insight on their customers once a purchase had been made, and little opportunity to engage with them further, beyond radio jingles and Facebook ads. Even if an extended warranty was taken up, any future communication would come from the customer, if they needed to lodge a claim.
Now, the activation of a digitally embedded extended warranty marks the beginning of a relationship between consumer and retailer/OEM, because it allows the retailer/OEM to capture the consumer’s key data – including communication details and consent to be contacted further.
Going forward the retailer/OEM can upsell to the consumer: “It’s been five years since you bought your laptop from us; want to see our new range?”; cross-sell them other relevant products; offer them birthday vouchers; nudge them to extend their warranty policy further or even purchase ancillary insurance products, should these be introduced in partnership with an insurer (more details on that possibility here).
Once the insurtech SaaS is implemented, the retailer/OEM can also use email/SMS/USSD to up-sell extended warranties for products purchased to the current customer database.
In short, digital extended warranties enable retailers/OEMs to leverage strategic direct marketing to their customers on a 1-to-1 basis.
Why digitally embedded extended warranties through Click2Sure?
During the COVID-19 pandemic and its lockdowns, Click2Sure has led the charge in responding to changing market needs in the insurance space by enabling insurance companies, retailers, manufacturers, and service providers to offer various customized insurance products and administrative policies to customers via multiple digital points. We are backed by five leading venture capital firms.
We have recently launched an embedded extended warranty solution built specifically for retailers and OEMs. Once implemented, it enables our clients’ customers to conveniently purchase products with an extended warranty during the check-out process or via WhatsApp, chatbots, USSDs, mobile devices, and QR codes. Once they do so, policyholders can access their Customer Dashboard at any time to:
- View their T&C’s
- View their policy schedule
- Lodge claims
- Manage, extend or cancel their policy
- View product or promotional messaging
- Take out other lines of insurance cover
On the administrative side, the solution includes dynamic product configuration, policy adjustment options,
claims management access, and financial management (which can be reported via Bordereau), standard reports, real-time dashboards, and business intelligence. In fact, there’s very little administration involved, with much of the traditional work supporting an extended warranty program being automated. The retailer/OEM can:
- See a real-time overview of claims lodged
- See a timestamp of all events
- Track real-time claims status and updates
- Leverage automated claims approval mechanisms
- Rely on AI-fraud detection mechanisms
- Rely on auto and manual flagging of potentially fraudulent claims
- Alert customers on warranties purchased or activated
- Send premium payment reminders
- Provide claims-related updates
- Provide policy renewal notifications
Plus, the power of data – free and at your fingertips:
Because our SaaS solution is cloud-hosted, there is no CAPEX outlay, only a set-up fee, and an ongoing monthly subscription fee. Furthermore, it includes reporting capabilities at no additional cost, placing customer insights in front of you in real-time. You’ll be able to analyze your customer data to better understand who your customers are and what they want from your brand, to help you to decide how, when and what to sell them.
Next steps if you’re ready to explore this opportunity:
- Contact our specialist team for an initial discussion and on-screen presentation: +27 (10) 045 4019
- or firstname.lastname@example.org.
- We’ll discuss the scope and breadth of your needs and draft costings, deliverables, and timelines.
- We’ll help you define the mechanics of your warranty program – offer the customer inadequate coverage for their money, and it could damage your brand down the line; offer too much and your finances could suffer. Getting the balance right for both you and your customers is imperative.
- Once the fundamentals are finessed, finalized, and agreed upon, we’ll swing into action; layering our software into your existing business systems without disrupting your systems’ security or your business continuity.
- Our aim is always to have a minimum viable product up and running for clients in 30 days – or less!
- We’ll partner with you for the long-term to respond with agility as your customers’ needs, and in turn, your business software needs, evolve, and change. We may implement fast, but our support is ongoing. For us, revolutionizing the customer experience is a journey rather than a job.
Thank you for reading and we look forward to helping you launch or digitize your extended warranty program.