November 3, 2016

Service Contract Pricing: Printers:

Despite the well-known risks of printers breaking down through normal wear and tear, some administrators and retailers are willing to sell service contracts for them that last four or even five years. Prices vary widely, and some even cover accidental damage.

As we continue our mystery shopping expedition across the consumer electronics and household appliance industries, this week we're taking a look at the service contracts offered by retailers of computer printers aimed at the consumer and small business markets.

The survey began with a shopping expedition for computer printers at 16 major retail chains: Abt Electronics Inc., Amazon.com Inc., Best Buy Co. Inc., B&H Photo & Electronics Corp., eBay Inc., hhgregg.com (Gregg Appliances Inc.), Micro Center (Micro Electronics Inc.), Newegg Inc., Office Depot Inc., PC Richard & Son, QVC Inc., Sam's Club, Sears Holdings Corp., Staples Inc., Target Corp., and Wal-Mart Stores Inc.

For one reason or another, we were unable to collect printer-service contract pricing data at BrandsMart USA, Costco, and Crutchfield. For that reason, those retailers are not included in this week's survey data. And although hhgregg was included, we were unable to collect as many product-protection plan pricing pairs from that retailer as we were from the others. It's just a reality we had to face: not everybody who sells consumer electronics also sells lots of printers.

Service Contract Administrators

Over the course of going through the digital camera offerings of the 16 retailers, we came across eight different obligor/administrator/underwriter teams. SquareTrade protection plans were featured in Abt Electronics, Amazon.com, B&H Photo, eBay, Office Depot, QVC, Sam's Club, Staples, and Target. Its underwriter at most of them was Starr Indemnity & Liability Co. At eBay, however, SquareTrade's underwriter was CNA Warranty Services Inc., and at QVC it was Continental Casualty Co. Both are units of CNA Financial Corp.

Service Net and AIG were at Best Buy and newegg.com. Warrantech, AMT Warranty and AmTrust Financial Services Inc. were at hhgregg and Amazon.com. Asurion and CNA Financial Corp. were at Walmart and Amazon.com. Micro Center had The Warranty Group. PC Richard and Sears had their own in-house service contract operations.

As in past weeks, we found that Amazon.com had a competitive mix of service contracts available from multiple administrator/underwriter teams, sometimes bidding against each other for the same printer attachment. This week, we found Asurion/The Warranty Group, SquareTrade/Starr Indemnity, and Warrantech/AmTrust selling printer service contracts on Amazon.com. We have not yet found another retailer that sells multiple different brands of service contracts in side-by-side competition.

As we did in last week's newsletter for laptops, we paid less attention to features than we did to price. We shopped for a wide range of laser printers, ink-jet printers, all-in-one units, and multifunction printers. We shopped for both color and black-and-white printers. But we did not shop for any 3D printers, nor for any of the large format or high output units that would be more at home in professional and commercial settings.

We tried to restrict our shopping to two brands: Brother International Corp. and HP Inc. But because some retailers stocked neither brand, and because others stocked hardly any printers at all, sometimes we had to take what we could get. So there was a sprinkling of units from Canon, Dell, Epson, Lexmark, and Oki as well.

Specific Price Points

Ideally, what we wanted to do was to shop for printers selling for $200, $400, $600, $800, $1,000, and $1,200, or as close as possible to those price points. But that was not always possible, because some retailers did not stock any printers priced over $500. So again, we took what we could get.

We shopped for only new units -- no refurbished, used, open box, no box, or otherwise not brand new printers still under their manufacturer's warranty. Some of the service contracts don't begin their coverage until the manufacturer's warranty expires, so we didn't want the product warranty status of the printer to be an additional variable.

In Figure 1, the price of the printers in the 144 product-protection plan pairs we were able to gather is detailed. The low-end units were most common, accounting for 53 of the price pairs. Printers selling for more than $600 accounted for 43 of the 144 pairs. In fact, we could find only 22 printer-protection pairs selling for $1,000 or above. Many retailers offered none at those price levels.


Figure 1
Price of Printers Surveyed

Figure 1


Part of the reason for the smaller pool of printers found at the high end, of course, was the fact that we were purposefully excluding the professional and commercial printers that were selling for up to $9,000 at some locations. And we didn't even look at 3D printers. At those price levels, it's a different market than it is for consumers or small offices.

When you have dozens or even hundreds of specialized or sophisticated printers in an enterprise setting, you're not looking for the same type of service contract as consumers are. You're looking for some sort of fleet maintenance agreement, because you know something's going to be broken at any given point in time.

A consumer, meanwhile, buys a service contract hoping it never needs to be used. It's the peace of mind in knowing that if their particular unit breaks, it will be repaired or replaced in a timely fashion. That's not to say that some of those $1,200 LaserJets aren't going into large offices, or that some office workers won't buy a $200 OfficeJet for their cubicle. But just as many retailers don't stock the more expensive units, we don't think many consumers will buy them.

The 16 retailers did, however, offer service contracts for most of the printers they did sell. We noticed that some did not offer service contracts for their high-end units, but that goes back to the point above: they're not really aimed at consumers, so why offer consumer service contracts?

However, we did find eight retailers offering printers priced above $1,000 with service contracts available: Amazon.com, B&H Photo, Best Buy, eBay, newegg.com. Office Depot, Sam's Club, and Target. Five of them offered long-term contracts lasting four or five years. So there is some serious risk-taking to be found with service contracts in this product category.

Years of Coverage Offered

The next set of metrics we collected were the price and duration of the service contracts offered with the printers. As with most other consumer electronic products, two- and three-year terms seem to be the favorites. But, as can be seen in Figure 2 below, there were a sprinkling of one- four- and even some five-year service contracts offered.


Figure 2
Length of Service Contracts Offered

Figure 2


There were only six one-year offers and only three five-year offers, so in the figures below we combined them with the two-year and four-year offers, respectively. Newegg.com was the only retailer offering one-year service contracts, and PC Richard was the only retailer offering five-year plans. Walmart, Sam's Club, Amazon.com, and eBay were the only retailers offering four-year plans.

Protecting Against Drops and Spills

Another point of differentiation was whether the printer service contracts covered accidental damage from handling. Many plans included power surge protection, but only about 10% covered actual damage of the sort that would be experienced if the printer fell off the desk and broke, or if somebody's iced tea were spilled into its document feeder.

What we found at retailers such as Abt Electronics, newegg.com and QVC was that they tend to offer two plans per printer, with or without ADH, with a $10 or $20 price differential between the two types of contracts. Elsewhere, we assumed there was no ADH even when the terms and conditions were vague. If they didn't overtly say they covered drops, spills or damage, we assumed they didn't.

Overall, the relative prices of the 144 printer-protection plan pairs averaged just under 15%. But as we found with other consumer electronics product categories, there was quite a wide variation between the most and least expensive service contracts. So that feeds into a central thesis of this shopping expedition: if you compare the price of the service contracts to the price of the products they protect, you cannot conclude that service contracts are never worth buying. And you cannot conclude they're always worth buying. The completely subjective answer is, it depends.

The average price of the one- and two-year service contracts was 12% of the printer's price. The one-year plans averaged 7%, while the two-year plans averaged 13%. But as can be seen in Figure 3 below, these 63 offers of protection ranged all the way from 3.8% to 30% of the printer's price. Assuming their administrators both pay claims, we'd suggest that one is a screaming bargain while the other is a bit overpriced.


Figure 3
One- and Two-Year Service Contracts
Price of Service Contracts Offered
(as a percentage of printer price)

Figure 3


The 3.8% offer came with a $1,300 HP LaserJet at Best Buy. The 30% offer came with a $100 Brother unit at PC Richard. There were no high-priced printers with high-priced service contracts (the highest price in this cohort was $105), but there were some low-priced printers with low-priced service contracts (e.g. a $90 printer at Staples with a $4.99 service contract offer.

SquareTrade accounted for about a third of these short-term service contracts. But notice that not all of them were crowded into the lower-left corner. Some were priced as high as $105 (on a $1,200 Epson at Target) and some cost as much as 20% of the printer's price (a $400 Brother unit at Office Depot).

Speaking of 20%, as we have noted with several other consumer electronic product types in recent weeks, Sears seems to love to price its service contracts at exactly 20% of the printer's price, no matter what that price might be. It happened with a $185 HP printer, with a $395 Canon printer, and with seven more units priced between those extremes. Therefore, in Figure 3 there's a string of red triangles across the chart, all at the 20% level.

Three-Year Service Contracts

In Figure 4, the pricing extremes for three-year service contracts extend a bit further out in almost every direction. Though the average price of the service contracts in this group was 16% of the printer's price, the range goes from 8% all the way up to 40%. The actual prices of the service contracts range from $7.99 all the way up to $200.


Figure 4
Three-Year Service Contracts
Price of Service Contracts Offered
(as a percentage of printer price)

Figure 4


There doesn't seem to be much of a correlation between the printer price and the service contract price, even when the same administrator is involved. For instance, Staples wants $7.99 to protect a $90 HP printer, while QVC wants $15 to protect a different $90 printer. Both are backed by SquareTrade. At the other extreme, three different retailers with two different administrators are asking anywhere from $75 to $200 to protect HP LaserJets selling for $1,000 or more.

SquareTrade is the one asking $200 to protect a $1,200 LaserJet at Office Depot. And SquareTrade is also the one asking for $35 to protect a $90 printer at QVC. But the most expensive service contract of all, at least compared to the price of the product it protects, is a $40 three-year service contract offered by PC Richard on a $100 Brother unit.

Four- and Five-Year Service Contracts

Going back to Figure 2 for a second, it's clear that retailers and administrators are very reluctant to sell service contracts covering printers for more than three years. Only four are willing to write four-year policies (Amazon.com, eBay, Sam's Club, and Walmart), and only one, PC Richard, is willing to write a five-year protection plan.

As can be seen in Figure 5 below, the price of that protection can be steep. Those three vertical diamonds at the $60 mark all come from PC Richard, offered in conjunction with printers selling for $100, $130, and $200. But who in their right mind would spend a hundred dollars on a printer and then $60 to protect it? Might as well buy two printers and throw the first one away when it breaks.


Figure 5
Four- and Five-Year Service Contracts
Price of Service Contracts Offered
(as a percentage of printer price)

Figure 5


There are, however, some serious wagers included in this group. Sam's Club, eBay, and Amazon.com are all offering to protect computers selling for more than $1,000 for four years. And they're asking for only between 8% and 16% of the product's price to protect them. All those offers, by the way, are backed by SquareTrade. But what we're saying is that to a consumer spending a considerable amount of money on a printer, these service contracts are offered at compelling prices. In fact, we wonder if they actually cover the risk.

Long-Term Risks

We also note that this is really the first time we've seen SquareTrade step up and offer long-term service contracts in a significant way. With laptops, they had only one four-year offer, and with digital cameras, they had two. Here, SquareTrade and its retail partners have 13 out of the 21 total four- and five-year offers for printer protection plans.

As we said at the outset, some retailers don't sell printers costing more than $500 or so. And some retailers sell them, but won't sell service contracts alongside them. So we think it's worth noting that SquareTrade has apparently bucked the trend in this instance. And while PC Richard has priced their long-term printer protection plans to make them hard for consumers to cost-justify, SquareTrade and its retail partners are offering long-term contracts priced below the 18% industry average.





AMT Warranty Corp.
PCMI - Your technology partner
Mize Warranty Connect
Pegasystems Inc.
After Warranty Analytics
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