January 31, 2006

Fixing Computers:

If it ain't broke but it won't work, making a warranty claim won't fix it. But some companies are now hiring "geeks" to sell PC tune-ups, or they're giving away free advice with their service plans, to help customers do everything from removing viruses to installing wi-fi modems.


Most insurance-like extended warranty plans usually cover just hardware failures -- the same kinds of defects in materials and workmanship covered by the manufacturer's warranty. Some extended warranties go a step further, particularly in the computer field, where products frequently get stuck in that limbo between not being broken and not working properly. For instance, let's say a computer's memory has been wiped clean by a virus. Technically, there's nothing wrong with the hardware, and there's no reason to replace or repair the hard drive. Yet the computer doesn't work, and it won't work unless somebody knows how to reinstall the operating system.

Some extended warranty companies therefore provide technical support services, usually over the phone, but sometimes also by email or instant messaging. So do some of the manufacturers, particularly during the initial run of the limited warranty, but sometimes for the life of the unit. Dell, Apple, Hewlett-Packard, and most of their competitors operate huge call centers whose mission is to help customers use what they've purchased. They all share a common goal: to keep the customer satisfied so that when it comes time to buy an upgrade, they'll remember who took care of them the last time around.

It's not all about warranty -- in fact rolling a truck to effect a repair is usually a costly last step. Many times the problem is in software configuration or in connectivity, and can be fixed over the phone. In recent years, several PC manufacturers have even begun to encourage their customers to fix their computers themselves, using replacement parts shipped to them by mail, and returning the broken parts in the empty boxes. To make self-repairs more routine, PCs have been redesigned to allow for easy opening of the system unit, and snap out, snap in replacements of major components such as power supplies and disk drives.

The Maytag Tutor?

Outside of the computer field the provision of technical support over the phone isn't so common, but even with something as universal as a refrigerator some manufacturers find a need to run help centers where consumers can get their questions answered. As appliances become more computer-like, though, and as microwave ovens are coupled with refrigeration units that can store, cook, cool, and preserve meals all at once, we may begin to see more of a need for the Maytag repairman to pull double duty as a tutor.

Companies such as NEW Customer Service Companies Inc. have applied some of the same techniques to the consumer electronics field. Particularly with some of the new digital, wireless, and satellite systems, there are bound to be some questions about installation or configuration. In fact, NEW already answers the phones for the DirecTV Group Inc., providing customers with help and instructions as they try to self-install those 18-inch satellite dishes and tune in some new programming. It has nothing to do with warranty or hardware failures. It's simply designed to help DirecTV the customers properly operate their systems.

In the last year or two, several retailers and manufacturers have decided to package and "productize" their service capabilities. In 2004 and 2005, Best Buy Inc. set out to build its Geek Squad service operation into North America's largest provider of in-home computer repair, support and installation services, announcing plans to nearly double the size of the team from 7,000 to 12,000 agents, placing these experts in every storefront nationwide. Suddenly, a retailer better-known for stacking its priced-to-sell boxes on loading dock pallets has become a major player in the service business.

Alternatives to Extended Warranties?

So what does this service-on-demand trend do to the extended warranty business? For instance, thanks to the Geek Squad, one could be forgiven for dismissing the idea of purchasing an extended warranty at Best Buy. "I can always bring it back to the Geek Squad if it breaks," a customer might think. "I don't need to buy the extended warranty just so I can get my questions answered." If half the appeal of an extended warranty is the peace of mind that comes from knowing something will be repaired, then wouldn't just knowing there's a geek on call provide some level of comfort?

Indeed, CompUSA and now Staples have also jumped in with their own technically-savvy teams of computer nerds, ready at a moment's notice to help a PC user in distress. Hewlett-Packard also has now launched an offering called the HP PC Tune up Service which for $99 will change the oil, replace the spark plugs, and adjust the timing of a computer, at least in a figurative sense. The purchase of such a service may have nothing to do with warranty work or even with repairs outside of warranty. But as with its automotive analog, a tune-up can help make a good car run better.

Since early last year, Service Net Solutions has been administering the Easy Mobile Tech program for Staples. Jeff McCarty, Service Net's manager of business development, said the companies have spent the past year gaining experience with the program, and now they're going to start selling it in earnest.

"We as a company have been looking at this for a couple of years," he said. But it wasn't until Best Buy rolled out its "Geek Squad" concept nationally that the idea began to gain any traction with clients. "Internally, we did our due diligence, looked at the market, got things in order, and started building it. It just so happened that our friends at Staples were going down the same path. They wanted to launch it internally, and we came to an agreement on how we would partner together to do it."

Now Staples is putting a major effort behind its so-called "Easy Button." The idea is to position Staples as not only a place to buy office supplies, but also a place to go for service. For the Easy Mobile Tech program, they already have a memorable slogan: Computers run when they see us. With this service, you basically buy a repair when you need it, McCarty said. "It's like a one-time extended warranty, except it has a 100% failure rate."

Price Schedule

The program uses a price schedule of one-time flat fees. PC configurations and peripheral installations are priced at $100 per event. A one-hour tutorial on the basics of Microsoft Office, Windows, files, folders, and Internet navigation is priced at $130. Hard drive installations are $70 in-store and $150 at the customer's home or office. Software package installations are $20 in-store and $100 with a housecall. But not all services are available in all areas.

Staples is the in-person front end of the program, using its 1,491 storefronts in the U.S. and Canada as the physical place where these plans are sold. Staples also promotes the service, both in-store and in its media advertising. There's even a few pages about the service on its Web site.

Meanwhile, Service Net runs the program's toll-free phone number and staffs the call center it points to. People who read about the program in a Staples advertisement would call the 1-866-4EZ-TECS number, where an automated attendant would greet them with the recording, "Thank you for calling Staples Easy Mobile Tech." It's a Service Net call center, but they're trained to say they're working for Staples.

McCarty noted that the Easy Mobile Tech program is completely separate from both the manufacturer's warranty and the extended warranty. And Service Net is not involved with the administration of extended warranties sold by Staples, he added. "Depending on which warranty you buy, or who supports it, there are always caveats about what is and isn't included. And for those things that are not included, this is a good fit."

"The PC repair is one element of it, but it's actually a small part," he said. "It is really more the technology services, and the labor services. That includes wireless network installation, peripheral installation, installing software packages, doing diagnostics, virus removals -- a lot of the varied services that people don't necessarily feel very comfortable doing themselves. And even if they do, they honestly may not want to take the time to do so. They want somebody professional to handle it for them. Not everybody's comfortable with their cousin doing it."

Telephone Services Expected

Remote, telephone-based support services are expected to be launched in the next few months. Prices have not yet been announced. McCarty also said in-store and at-home prices may be adjusted up or down in the near future. "But basically, you know going into it, here's my cost. Here's what the service entails. You know you'll get X, Y, and Z services, and you'll know the limits. For example, for a data transfer, you'll know how many gigabytes are included. Everything is laid out so the consumer knows what to expect."

"Consumers have to go somewhere to get service," he said. "Often times, they buy a product from a retailer, and when they go back to that retailer [for service], that retailer has no options for them. So now, if you go to Staples, they're trying to tie in all aspects of not only selling the finished good but also providing the service, which they're absolutely fanatical about. You've seen the 'Easy Buttons?' They really do live by that philosophy."

So is he worried about reducing the sales of extended warranties? Strictly speaking, it's not Service Net's extended warranties that Staples is selling in the first place, so that's not an issue. But certainly, Staples must be worried about cannibalizing its lucrative sales of extended warranties by pushing technical service on demand.

"There will be some people who will purchase warranties. And there are others who will not," McCarty said. "But when they need service, they'll have to go somewhere. We feel like they can both coexist. I don't think that necessarily there will be a lot of cannibalization of the two different products. Frankly, I think it all depends on how you position it. And I think there are a lot of opportunities that we're looking at where you can do a co-branding or commingling of the two."

PC Tune Up Services

For instance, perhaps the terms of an extended warranty could someday be widened to include a free annual tune-up? Jim Kahler, HP's director of North American Personal Systems Group warranties, said such tune-ups could actually help reduce the need for warranty work, in much the same way that auto tune-ups can prevent break-downs later on. However, for now HP is going to keep them all separate: manufacturer's warranties, service plans, and geek-operated tune-up services.

"That is an important area for us, for customer loyalty and customer satisfaction, to stand behind our products not just through the warranty period but beyond," Kahler said. "We want our customers to remain loyal to us, so that when they get into their next purchase cycle, they've had a good product experience with us."

Kahler said the HP call centers already spend a significant amount of time with customers who have problems that don't require a repair, but that do prevent them from using their computers to their fullest potential. For instance, perhaps they need to get an IP address, or they need to set up a new printer, or they need to remove spyware or viruses they've inadvertently downloaded.

"Many of the issues faced aren't really hardware failures," he said. Instead, they're issues with systems integration, software, connectivity, installation, configuration, or training. If a tune-up isn't likely to solve the problem, HP is now also offering a telephone-based technical advice service called SmartFriend. As its name implies, SmartFriend is positioned as a replacement for the geeky cousin or the nerdy neighbor you always call when the computer won't work right. SmartFriend is priced at $60 for 30 minutes of time and $100 for an hour's worth.

"SmartFriend is there for issues that are not covered under warranty. PC Tune up Service helps our customers understand what's the best way to maintain their product. It's preventative maintenance, like bringing in your car for a tune-up," Kahler said. Except nothing will actually be brought in anywhere. Interested customers call 1-866-234-1377, pay their money, and talk to an expert. Imagine if a car could be fixed that way.

"These kinds of services are really important because they serve a purpose with customer loyalty, and maintaining that relationship beyond the warranty period. But also, the tune-up covers areas that are also cost drivers for warranty," Kahler noted.

Warranty Cost Reduction

HP has recently put a major effort into warranty cost reduction. As steady readers of Warranty Week are no doubt aware, the company kept its warranty outlays relatively steady in the fiscal year ended Oct. 31, 2005, even as product sales grew 7.5%. The result is a falling claims rate: HP spent 3.4% of sales in fiscal 2005 on warranty versus 3.7% a year ago and 4.0% two years ago. For a company with nearly $70 billion in product sales, those little tenths of a percentage mean millions of dollars.

But it's important to note that HP has not tried to cut costs by scaling back on warranty coverage. That, the company believes, would hurt customer satisfaction and impact brand loyalty. "We could cut costs by cutting the scope of our warranties. But we choose not to do that," Kahler said. For instance, HP has rejected the idea of going to 90-day warranties, even at the low end of the PC and printer lines. And it won't charge customers for the cost of shipping a broken computer or its parts in either direction, to or from the repair facility. Some companies already do that. "We tend to be most liberal of the major consumer PC brands," he said.

More than anything, what HP wants is for customers to buy its products again and again. "Now that we're getting some third, fourth, or even fifth-time purchases, people are buying more and more on their perception of a brand and the experience they've had with a product. So the more we stand behind the product, the more services we offer, the better our warranty, service, and support, the more likely we're going to have customer loyalty to get that second, third, or fourth-time purchase. It's a very critical part of our market share protection strategy," Kahler said.

Like McCarty, Kahler said he doesn't think these technical service on demand services are going to hurt extended warranty sales. "It's more of a per-event service than an insurance coverage," he said. "We do have that as well. We offer service plans that include technical service and on-site repairs. This is more like a per-incident service." Plus, neither SmartFriend nor the PC Tune up Service is going to replace broken hardware for free, as would an extended warranty plan.

Replacing Replacements with Repairs?

Clearly, these on-demand service plans are not replacements for extended warranties. If anything, they may be replacements for replacements. In other words, there have been times when those of us on our third or fourth PCs have been in need of a repair, but instead went for a replacement, partly because in the interval between purchases the units have doubled in speed and halved in price, but also partly because a good PC mechanic is so hard to find. In Cuba they keep their '57 Chevys running with rubber bands and duct tape. But in America we just throw it away. Or at least we used to, until we heard about the Geek Squad.

That's not to say that Best Buy invented PC troubleshooting, or that either Staples, Dell, or HP have perfected it. However, that they have done is taken the amorphous concept of service and reduced it down to a SKU that can be sold by a highly-skilled labor force. The problem is, there have always been companies providing troubleshooting services, both bundled with and separate from warranty work, and both in person and over the phone.

Danny Hourigan, president of the Service Plan Division of NEW Customer Service Companies Inc., pointed out that his company already provides a good amount of free help and advice to those who have purchased extended warranties. In essence, what he's saying to the people who need pay as you go services such as SmartFriend or the Easy Mobile Tech program is "you should have bought the warranty."

"We already talk customers through on computers, televisions, and electronics," Hourigan said. "Put us to the test. That's what we do for a living. The sell-through is peace of mind. We want our clients' customers to know that they have somebody at the other end of the phone. Any time they want to phone us, 24 hours a day, 365 days a year, they can get that technical advice. It may just be confirmation back to them that they're doing the right thing. Or it might simply be an adjustment on their remote control. It may be something simple and trivial.

"But to the end user customer, it's not trivial. It's very important," he noted. "It's all to do with peace of mind. People can debate the value of extended warranties 'til the cows come home. On balance, it's a very good thing, for one simple reason: peace of mind.

"And when it really comes into its own, in my opinion, is when the technology becomes more and more sophisticated. If you have a plasma screen on the wall, or a hi-fi system, the last thing you want to do is to decouple it from everything else you have at home and take it back to the store to be fixed. You also really don't want a technician in the home, decoupling everything and putting it on the floor. The ideal situation would be to have somebody who is capable from a technical troubleshooting point of view fix the issue for you [over the phone], with the right amount of knowledge on our end."

Fixed Without Rolling a Truck

If it can't be fixed over the phone, then NEW is going to have to roll a truck, Hourigan said. But a "substantial" percentage of calls are fixed over the phone during the first call, he said. For clients such as DirecTV, the goal is to always help the customer install and configure the unit themselves. For that client, NEW is providing technical troubleshooting services as an alternative to a warranty repair.

Extended warranties are frequently criticized for being too expensive, but Hourigan said these new on-demand service plans are too expensive. "It's probably around the same price as an extended warranty," he noted. "So they're getting a large amount of money for a half an hour of time. We're getting that same amount of money over the life of the contract." And when NEW provides free advice over the phone, the meter isn't running.

"Any product which is technical by nature, I would definitely get the extended warranty as opposed to buying a 30-minute call," Hourigan said. "Even with that 30-minute call that you're buying, there's no certainty whatsoever that the problem will be resolved. They may take you though full 30 minutes, then promptly sell you another 30 minutes, then at the end of it say 'sorry, we have to roll an engineer out to you, and that will be another $179.' So I don't see it personally as being a good value for the consumer."





Correction

The bundling of products and warranties as described at the end of the Jan. 24 column may in fact be illegal. A knowledgeable reader who's been in the auto extended warranty business for decades writes in with the following observations:

"In your paragraph on "What's a Warranty Worth?" you mention a scenario of a higher price with a price rebate if the consumer doesn't want the full warranty. If you're referring to a "limited warranty" then I believe such a rebate is a violation of Magnuson-Moss Warranty Improvement Act since one can't sell a limited warranty or imply there's a price for the limited warranty through price manipulation.

"Alternatively, if you're referring to an extended warranty contract and a retailer advertises a product's retail price that includes an extended warranty contract and doesn't disclose it, then it's packing. Both are bad. It would be a shame if a retailer or manufacturer went down this path without understanding the subtleties."




Assurant Solutions Shed The Light
Fulcrum Analytics
Warranty Chain Management Conference
GWSCA First Annual Conference on Service Contracts
Sign up for a free subscription to Warranty Week:
     subscribe     change of address     unsubscribe