Holiday shopping is reaching its peak and customers are being more careful about shopping and marketing scams, especially in light of a November “Consumer Reports” study that said extended warranties are generally not worth their price.
Researchers doing the study predicted that consumers would spend $1.6 billion on extended warranties for electronics and appliances alone. That number is just for the months of November and December.
Donald Lichtenstein, a professor of marketing at the Leeds School of Business, agrees that extended warranties are just not worth the money.
“Most all the time, I don’t get the extended warranty on a product,” Lichtenstein said. “Sometimes I will, but there are a lot of things to consider about extended warranties.”
Lichtenstein said that extended warranties often contribute to high profit margins for stores and are usually offered on technology-based products.
“Technology-based products both increase in quality and decrease in price very rapidly. Would you buy an extended warranty on a computer that costs $1,500 if in six months, it is going to cost less and be better?” Lichtenstein said.
He said that often it is just more economical to expect to buy a new item when the old item breaks or wears out than to purchase a warranty.
According to “Consumer Reports,” people often work under the assumption that products will break down. The reality is that products don’t break down as often as people think.
Lichtenstein urges shoppers to calculate the probability that the item will break and how much it would cost to fix it. He said shoppers should multiply the probability and the repair cost, then compare the product to the price of the warranty.
“If the price of the warranty is higher than the product, then it is not worth it,” Lichtenstein said.
Kim Kleman, deputy editorial director of “Consumer Reports” said on National Public Radio to “just say no” to extended warranties.
Kleman mentioned two exceptions that “Consumer Reports” supports buying extending warranties for: rear projection micro-display TVs and Apple computers.
“I never buy extended warranties when they are offered to me,” said sophomore political science and broadcasting major Julia Yugel. “I think they are such a waste of money.”
Lichtenstein said that the consumer can never say “always” or “never” in terms of judging whether something is a good or bad deal. The shopper must look at the specifics of every situation.
“Consumer Reports” urges customers in their study to beware of loopholes in extended warranties.
Stacey Chavez, a sophomore pharmacology major at Metro State University, said that she bought an extended warranty for her phone but now is unhappy with the results.
“When my phone broke down a couple months ago, I tried to get a new phone through my warranty that was the same as my old phone. Then, Cingular told me they didn’t (carry) my phone anymore even though I’m pretty sure they did,” Chavez said. “They sent me one that is older and a lower quality than my old phone.”
Lichtenstein said to look at buyer reports and consider the retailer and manufacturer’s reputation. If it seems like a reliable product and the manufacturer has a good reputation of standing by its product, it is very unlikely an extended warranty is needed.
However, Lichtenstein said manufacturer warranties are different and can even be profit margins for companies trying to sell extended warranties.
For example, if an item comes with a 90-day warranty, the retailer will try to sell an extension to the warranty for when the 90-day warranty expires. What many shoppers don’t know is that if the item is going to malfunction, it usually happens during the first 60 to 90 days.
“The company will make a profit because they do not have to fix the item because the extended warranty has not kicked in yet. The manufacturer’s warranty already covers it for the initial period,” Lichtenstein said.
Lichtenstein also said to negotiate; extended warranties can actually be bargained down.
“It is usually possible to get a better deal on a warranty than the initial deal that is offered,” he said.
Lichtenstein’s ultimate advice is to shop carefully.
“You’ve got to be very vigilant as a consumer,” Lichtenstein said. “Keep your mind working; don’t go on autopilot.”