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Comment: How retailers and consumers can avoid Christmas extended warranty pitfalls

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Despite the doom and gloom predictions for most retailers this year, Christmas remains the boom time for consumer electronics goods with customers due to spend billions this holiday season. While some goods like TVs and console sales are in sharp decline, there’s always the next ‘must-have’ gadget to take their place and this year is no different. £3.5bn worth of UK Christmas sales will be purchased on or influenced by smartphones alone, with £330m million sales made up of direct smartphone purchases, according to a forecast from business consultancy firm Deloitte in November.

As smart mobile-connected devices become increasingly essential to consumers’ daily lives, one result is that they also become more prone to failures from drops and spills to mechanical faults. For retailers, it means the extended warranties sell has become a huge business - this year alone it makes up a £1 billion market.

Tapping into that opportunity, the big issue for retailers is the level of consumer dissatisfaction which plagues warranties in general. Even amongst regular warranty buyers, warranties aren’t trusted after years of expensive deals that over promise but underwhelm. Our own research shows that 2/3 consumers don’t trust warranty companies to pay out and 85% want more choice. This was compounded by BBC Watchdog’s investigation last year into (now defunct) Comet’s extended warranties and has come to a head with the Office of Fair Trading’s (OFT) announcement of best practice measures for warranty providers and new initiative to create a price comparison to tackle an industry that’s in need of an upgrade.

So how can in-store retailers avoid getting in trouble for poorly serviced warranties and but still take advantage of the warranty bonanza in the run-up to Christmas?

Start by participating in the OFT’s warranty framework. Participation in their price comparison website can help consumers evaluate their value proposition compared to other retailers. Transparent pricing and information about coverage should be easily accessible to prospective customers, and having knowledgeable staff who don’t pressure customers helps avoid accusations of unsavoury selling practices. Make sure that you or your warranty provider are conducting regular mystery shopping so that you understand your customer’s experience.

Enhance the mobile/online customer buying experience – consumers now buy all manner of goods online but many retailers haven’t adapted their warranty offerings to maximise uptake from customers.

When looking online, consumers need easy access to information about a warranty’s quality to maximise their likelihood of buying. A consumer on the fence is much more likely to buy warranties that have many 5-star ratings from other customers than a warranty that has no ratings. Additionally, in the age of “Google everything,” it’s vital to ensure that the warranty offering has a good reputation when a consumer searches the web for more information about a warranty.

Smart retailers are also increasingly moving towards in-store access for warranty information from mobile devices. While adoption of technology like QR codes can be cumbersome, it’s inevitable that customers will want to enhance the information they have at their fingertips. Offering a mobile website interface for warranty information, particularly if it includes customer reviews or other validations of service quality, can help retailers monetise these customers more efficiently.

Even if a retailer is not ready to deal with mobile sales, click-and-collect is an increasingly important channel for most. Ensuring that click-and-collect staff are equipped with the tools to sell warranties should be a core part of any retailer’s strategy.

Take your warranty management online – it’s all about easy self-service – something that most consumers expect in the age of the internet. Most other service sectors like travel and stock brokerages have successfully moved customer interaction online in a self-service model. Yet many warranty customers can’t even view their warranty online, let alone file a claim. They are forced to dig into a filing cabinet or shoebox full of old bills to find out when their warranty expires and what it covers. Working with providers that make this process easier will be a big pull for consumers.

Invest in service quality and transparency – The internet makes it very hard to hide bad customer experiences, so it’s important to choose a warranty provider that offers a high quality service and genuinely addresses customers who have had a negative experience. Just as consumers buying from Amazon and eBay rely on peer feedback on what to buy and from whom, customer reviews provides transparency into how good a warranty service is.

When customers can read the good along with how a company responds to the bad, they get a better picture of where your warranty product stands. Bringing customer feedback under your control also makes sense in an age when the customer can easily tell the world via Twitter, Facebook or blogs if your product doesn’t meet up to expectations.

It’s this level of transparency in the extended warranties industry that will actually help retailers give their customers a better quality of service, improving consumer expectations through great retail experiences. If retailers and customers can avoid those service and warranty pitfalls, then everyone will have a very happy Christmas.

Published on Friday 14 December by Editorial Assistant

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