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Are extended warranties worth it?

Nancy Marshall-Genzer Dec 14, 2010
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Are extended warranties worth it?

Nancy Marshall-Genzer Dec 14, 2010
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TEXT OF STORY

Kai Ryssdal: So there you are, in the checkout line, you’ve got your new laptop or DVD player in the cart and you’re all set to check out and the sales person brings things to a screeching halt. “Would you like,” they say, “an extended protection plan to supplement the manufacturer’s guarantee?” And you wonder, “do I really need to spend more money on the off chance this thing goes bad?”

Marketplace’s Nancy Marshall Genzer has more on the business of buyer protection.


Nancy Marshall Genzer: Electronics stores offered extended warranties first. Now all kinds of retailers do, on everything from cars to jewelry. But research from Consumer Reports shows extended warranties are unwarranted. That’s because most products don’t break during the extended coverage period — which is why extended warranties produce such a great revenue stream for retailers.

Joe Feldman: Yeah, it’s very profitable. And it’s much richer profit than selling some of the goods.

That’s Joe Feldman, a retail analyst at the Telsey Advisory Group. He says Best Buy used to report extended warranty sales. That is, until analysts figured out that the chain made half its profits from warranties. They make up for the deep discounts box stores offer. Economists say manufacturers know this. So some have shortened their own standard warranties to make their retailers’ extended coverage more appealing.

Kevin McCabe heads the Center for the Study of Neuroeconomics at George Mason University.

Kevin McCabe: You want to make a good deal for your retailers. Otherwise, they won’t carry your products.

Best Buy offers extended warranties on almost every product it sells. Linger near the registers and you’ll hear the cashiers offering them repeatedly. Like at this Best Buy in the Maryland suburbs of Washington. If customers say no, they’re pressed further.

Cashier: It covers all blow outs, damage from dust, overheating.

Customer: No, that’s OK.

Cashier: You sure?

Customer: Positive.

Cashier: You sure?

Customer: Positive.

Store manager Christopher Anderson says Best Buy isn’t trying to scare people into thinking products will break down. It’s just offering a valuable service.

Christopher Anderson: It just gives you the peace of mind and comfort that you bought it from Best Buy, we’re standing behind it and you don’t have to worry about anything.

Customer Randy Morgan just plunked down $40 for an extended warranty on a flat-screen TV.

Randy Morgan: Anything over $300, $400, I say it’s worth it, to buy. All my computers, laptops, TVs and high-end cameras, I buy a warranty with.

Morgan says an extended warranty did pay off for him once when his TV wouldn’t turn off. Best Buy came in and fixed it. He says that sense of security is worth paying for.

In Washington, I’m Nancy Marshall Genzer for Marketplace.

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