The December Journal of Consumer Research has an article on a topic that I have wondered about - why people purchase extended service contracts (ESCs) on consumer electronics like TVs and cameras, given how expensive those suckers are (between 10% and 50% of the product's price, according to the article), and that Consumer Reports and all the other consumer advocate organizations advocate against purchasing them. This really seems like an obvious place for self-insuring.
I cannot speak to the quality of their statistical model (based on data about 1700 purchases of consumer electronics at a single retailer), which, to be honest, I didn't even bother reading about in its entirety, so believe the results at your own risk. In fact, I am offering a very attractively priced insurance policy that will pay you double your money back if these findings do indeed turn out to be faulty. Email me for details.
Here's what they found:
* People are more likely to buy ESCs for hedonic (i.e. fun) products than utilitarian products. They speculate this is because people place a higher value on hedonic products than utilitarian ones, even if they cost the same amount to buy.
* People are more likely to buy ESCs when they buy the product on a promotion, especially an unadvertised promotion. This may be due to the savings in the cost of the product putting the consumer into a positive mood, which has been linked to higher risk aversion.
* People are less likely to buy ESCs when the product is high-priced (perhaps due to a price = quality heuristic).
* Low-income people are more likely to buy ESCs than higher-income people. This result sucks because these are the people who can least afford to throw money away.
* There were no differences in ESC purchases between men and women.
Source: Chen, T., Kalra, A., & Sun, B. (2009) Why do consumers buy extended service contracts? Journal of Consumer Research, 36(4). DOI: 10.1086/605298
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3 comments:
The only items I seem to buy ESCs on are those which I feel intimidated by the idea of having repaired. In practices these have included my dishwasher, washing machine, and dryer. If I had a large flat-screen TV that you mount on the wall, I might get one for that as well.
I would never buy an ESC for a smaller electronic thing because (a) IME they almost never fail, and (b) when they do fail it's just a nice excuse to buy a new one.
Tam - yeah, and the new one is probably nicer than the one it's replacing, too.
The really sad part of all this is what happens if you try to actually use that extended warranty that you paid for. Often, you have to jump through so many hoops and go to so much trouble that many people just give up and buy the new thing anyway. The obvious exception being the apple store. There, if you purchased the extended warranty, they would cheerfully hand you a new item without the severe 10 second lecture about how you should always get the "Applecare" that they gave me before handing me a new replacement anyway. Ha!
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