December 9, 2010
Editor's Note:
This column by Joe Erdeman of Assurant Solutions is
the latest in an ongoing series of contributed editorial columns. Readers who
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Making Holiday Shoppers Happy with Extended Service Contracts:

How to increase retailer extended warranty attachment rates in the midst of a holiday price war? With the 2010 holiday gift-giving season well under way, here are eight strategies to help retailers increase extended warranty sales.

By Joe Erdeman, president of the Assurant Solutions extended protection solutions business.

This holiday season promises to be a little merrier and brighter for retailers than the past two years. According to the National Retail Federation, retail sales for the season are expected to increase by 2.3% this year to $447.1 billion.


Chart: Holiday Sales Growth by Year, 1996 - 2010

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Holiday Sales Growth by Year, 1996 - 2010
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Despite the upbeat predictions, however, consumers are approaching the shopping season with caution and a frugal attitude to many non-essential purchases. The Conference Board Consumer Confidence Index, which increased slightly in October, is still at historic lows because of concerns about unemployment and the lackluster job market. That continued hesitancy was reflected in October when retail sales rose a promising 1.2%, the fourth consecutive month of increased spending.

A closer look at those numbers, however, shows that while automobiles and book and music store sales increased by one percent, sales at department stores and electronic and appliance stores actually fell 0.7%. Although not a surprising development considering the state of the economy, it still must have been disappointing to retailers in those categories who had hoped to get shoppers in the holiday spirit before they could even say "trick or treat."

While preliminary numbers for November look much more promising, the final test will come in December when half the holiday sales are expected to be made in the traditional 10-day run up to Christmas as procrastinators finally take to the malls.

Finding Opportunities in Uncertain Times

Retailers are working diligently to lure consumers into their stores and websites with significant promotions that appeal to consumers� price consciousness. With dramatic cost cutting and holiday price wars well underway, they feel their margins being squeezed at the same time they are being asked to provide additional value to their customers.

From mobile apps to 24-hour operations, retailers are working harder than ever to appeal to today�s prudent consumer. While reaching out through e-mail marketing or the latest widget to consumers, they shouldn�t forget to help educate shoppers on the benefits of extended service contracts (ESCs) also known as extended warranties and protection plans.

By helping educate consumers on the benefits of these plans, retailers can create long-term advocates, increase brand loyalty and deliver value to their customers.

A research study published last year in the Journal of Consumer Research, "Why Do Consumers Buy Extended Service Contracts?" found that shoppers are more likely to purchase ESCs for products with relatively higher hedonic value than for products with relatively higher utilitarian value.¹ Utilitarian products are those that are useful and necessary -� think vacuum cleaner. In contrast, hedonic products are those defined as being associated with "fantasy, fun and pleasure."² That translates to items likely to be high on holiday wish lists, such as TVs, MP3 players, tablets, computers and jewelry.

According to a recent Consumer Reports poll, 62% of Americans plan to give electronics as gifts for the holidays.³ In addition, one-fifth of consumers polled in the American Express Spending & Saving Tracker survey said that the most expensive items they will buy this season will be in the electronics and gadgets category.4 At the same time shoppers� eyes are focused on the latest gizmo, they also are being very practical this holiday season. These trends signal a significant opportunity for retailers to increase their attach rate for extended warranty sales.

Peace of Mind and Holiday Giving

More than ever, consumers are sensitive to the expected cost of replacing a broken purchase. Worried about the future, they are looking in their wallets to figure out if they have enough money to splurge on a big-ticket item and whether they�d be able to pay for its repair or replacement. With that in mind, they are more apt to be concerned about what they can do to protect their purchase. Those worries increase for items that cannot be easily repaired and that have a higher emotional value. Retailers are in a unique position to ease those worries and help shoppers achieve "peace of mind" with extended service contracts.

But it won�t be easy.

The holiday season is one of the most challenging times to sell extended service contracts. Retail stores are flooded with seasonal employees who often are unfamiliar with the products that they are selling, never mind the benefits of extended warranties available for them. Meanwhile, long-term sales associates see their face-time with customers dwindle as seasonal crowds pour into the store. The frenetic pace of the holidays and the cacophony of the crowd can become overwhelming.

Under such conditions, it becomes even more evident that one size does not fit all when it comes to selling extended service contracts and educating shoppers on their benefits. At Assurant Solutions, we customize our approach for our partners based on their unique retailer selling culture and their particular customer base. But while each retail selling experience presents an opportunity to reach consumers, there are some important ways businesses can help address shoppers� needs this holiday season.

Tips to Increase Extended Warranty Sales

Beyond publishing marketing brochures and hoping that a sales associate will mention extended service contracts when they are juggling three or four customers, following are eights tips to help increase attachment rates:

  1. Reach out to shoppers before they shop. Customers today are thinking more critically about their purchases than ever before. According to Forrester Research, some 66% of in-store shoppers are doing research online before heading to a store. That represents a significant opportunity to help educate consumers about the products and the benefits of extended warranties. When reaching out about store sales or promotions via web and mobile applications or traditional circulars, include information about extended service contracts and speak directly about the benefits of the plans.


  2. Tap into the power of the web. According to Shop.org�s eHoliday Study, nearly two-thirds of retailers expect their company�s online sales to grow by 15% or more this holiday season.5

    Chart: eHoliday 2010 - Projected Online Revenue Growth

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    Despite the continuing trend to shop online, many retailers are still missing out on the opportunity to sell extended service contracts through this channel. Before customers add an item to their shopping cart or checkout online, ask them if they would like to protect their purchase with an extended service contract.


  3. Explain the benefits of extended service contracts to employees. Most retailers will have temporary workers or less experienced sales associates on the sales floor during the gift-giving season. Take the time to train associates to help them feel more comfortable in discussing the product and making the sale. In addition, consider having temporary employees partner with experienced sales associates to help them learn about the program and get comfortable in articulating its benefits to shoppers. In this way, if a seasonal staff member gets busy they have more than management to go to for answers. Remember, only educated employees can educate consumers about the benefits of extended warranties.


  4. Address the needs of the customer. Remind associates to ask the potential buyer how a product will be used. Only with that information can an employee speak to the relevant extended warranty benefits that the customer would be interested in. For example, when selling electronics to a business road warrior, speak specifically about the benefits of battery replacement and accidental damage coverage.


  5. Leverage sales promotions. The Journal of Consumer Research study "Why Do Consumers Buy Extended Service Contracts" found that "unadvertised promotions are more likely to increase consumers� risk aversion and therefore increase their propensity to purchase ESCs." Sales promotions that make prices lower than expected provide shoppers with more value for the money they anticipated spending already. So think about how the deep discounts being offered this season may help provide a financial impetus for customers to protect their bargains.


  6. Let the customer decide. Sales associates may not feel comfortable selling an extended service contract or may hold preconceived feelings that customers wouldn�t want to purchase a plan. They may think that since the purchase is a gift that it wouldn�t be necessary. Help them understand that offering shoppers the opportunity to buy a plan is part of the store�s overall customer service efforts, and let them know that most extended service contracts are transferable to gift recipients and can help protect holiday presents. The shopper deserves the opportunity to make their own decision about purchasing an extended service contract.


  7. Don�t leave extended service contract sales to only those on the sales floor. In the holiday rush, a sales associate may not be able to help every customer. Many will make their way to the cashier without help from anyone on the shopping floor. In these cases, the cashier will be the last in-store touchpoint for shoppers, and the last opportunity for stores to make sure that buyers don�t leave without the opportunity to purchase "peace of mind." Educate the cashier to make sure they are familiar with the program�s benefits so they can offer the customer this opportunity to protect their purchase and make it easy for the cashier to process that transaction.


  8. Know when to say when. Don�t add to a shopper�s list of holiday headaches. Listen to their needs and offer solutions to their concerns. While extended warranties help create value for customers, every customer will not want to buy a plan. Extended service plans aren�t for everyone. The overall goal in each communication should be to provide shoppers with the opportunity to purchase the product, and the service and value they want.

Increasing holiday attachment rates for extended service contracts will be a challenge this holiday season, especially for retailers that don�t see the opportunities and value these plans create for shoppers. Sales associates and their managers will need to see the value in their offering and customers must understand their benefits. Those retailers who can communicate the advantages of these plans will enjoy the rewards of a successful holiday selling season.

About Assurant Solutions

Assurant Solutions businesses develop, underwrite, market and administer specialty insurance, extended service contracts and other risk management solutions through collaborative relationships with leading financial institutions, retailers, manufacturers, automobile dealers, funeral homes, utilities and other entities. With operations in 24 cities, including executive offices in Atlanta GA, Assurant Solutions serves clients and their customers in 12 countries throughout North America, the Caribbean, Latin America, Europe and Asia. www.assurantsolutions.com

The Assurant Solutions companies are part of Assurant Inc., a premier provider of specialized insurance products and related services in North American and selected international markets. Assurant, a Fortune 500 company and a member of the S&P 500, trades on the New York Stock Exchange under the symbol AIZ. Assurant has over $27 billion in assets and $8 billion in annual revenue. www.assurant.com

About Joe Erdeman

Joe Erdeman

Joseph (Joe) E. Erdeman is an executive vice president of Assurant Solutions and president of the Extended Protection Solutions business. Mr. Erdeman�s career with Assurant Solutions and its predecessor companies began in 1993 when he joined American Bankers Insurance Company of Florida as a sales representative working out of the company�s Atlanta sales center.

In September 1997, Mr. Erdeman was promoted to vice president and national marketing manager for the retail distribution channel. His responsibilities included management of the channel�s sales force and development of the channel�s marketing strategy.

In August 2000, Mr. Erdeman was promoted to senior vice president, Retail Channel executive. He assumed his current position in June 2002 as part of a reorganization that consolidated management and administration responsibility for Assurant Solutions� growing warranty and extended service contract businesses. The extended service contract business was combined with the vehicle service contract business in November 2007.

Footnotes:

  1. Chen, Tao, Ajay Kalra and Baohong Sun, "Why Do Consumers Buy Extended Service Contracts?" Journal of Consumer Research Inc., Vol. 36, December 2009, published online June 25, 2009.


  2. Ibid.


  3. Consumer Reports, "Consumer Reports Poll: Cash, Electronics and Gift Cards Top Holiday Wish List This Season," Press Release, November 3, 2010.


  4. American Express, "100% of Women Say They Will Give Gifts This Holiday Season, While 12 Percent of Men Will Sit Out the Peak Shopping Season Entirely," Press Release, November 10, 2010.


  5. National Retail Federation's Shop.org website, "Majority of Online Retailers Expecting Strong Sales this Holiday Season, According to Shop.org Survey," Press Release, October 21, 2010.




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