Should You Offer Product Protection Insurance to Your Customers?


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Many companies choose to offer product protection to their customers, either as an automatic addition of value, or as an available “extra” for a nominal fee. There are many advantages to this, including appealing to new customers and guaranteeing higher rates of satisfaction, but is it worth your time and effort to develop these packages?

Types of Product Protection

First, let’s take a look at the types of product protection that exist:

  • Product insurance. First, there’s straightforward product insurance, which usually covers a product in the event that it’s lost or damaged. This is especially common for items of high value, such as engagement rings.
  • Product protection plans. Product protection plans, in general, may protect the product from certain events or situations, such as loss or theft. You may also find obsolescence protection plans that replace old tech if new tech becomes available within a designated period of time.
  • Pricing protection plans. Pricing protection plans are soft guarantees that cover a purchaser in case they’re able to find the same product for a lower price within a defined period of time.
  • Extended warranties. Cars and electronics are just two examples of products that usually come with optional “extended warranties,” which cover repairs, damage, and lack of functionality for a period of time longer than what’s covered by the manufacturer.

Benefits of the Strategy

All of these product protection variants carry the same types of benefits:

  • Additional value. If the product protection plan is part of a package deal with the product, it might serve as an addition of value in the customer’s eyes. If they’re debating whether or not to buy a product, and they see this feature, it may be enough to push them over the edge.
  • Additional revenue. If you plan on offering an extended warranty or optional insurance as an add-on, it could represent a significant revenue stream for you. As many consumer reports have indicated, extended warranties are designed to, on average, pay out in favor of the retailer; your customers will get some extra protection, but at the end of the day, you’ll make more money than you’ll pay out to them in repairs and replacements.
  • Brand interaction potential. Extended warranties and coverage plans keep customers in contact with the brand. They may need to renew their registration, pay a monthly fee, or interact with the brand further in the future. These are all future points of brand interaction, which can strengthen the consumer-brand relationship.
  • Distinction from competition. If a customer is torn between buying a product from you and from your competitor, an extended warranty or protection package will help you distinguish your brand. It could be the tiebreaker you need to earn more customer loyalty.
  • Satisfaction preservation. Finally, giving customers options for when their products break or need repair helps you guarantee, to some degree, their eventual satisfaction. A protection plan forces them to come back to you so you can make the situation right, and may make them feel more comfortable with their purchases from you in the future.

The Downsides

However, there are some downsides to offering these packages as well:

  • Gimmicky nature. If you advertise your protection plans incorrectly, or apply them to products that don’t really need them, your protection plans could look gimmicky, and harm the reputation of the brand. For example, nobody really needs toaster insurance or an extended warranty on their silverware.
  • Product image. There’s also a slight risk that advertising a protection plan for a specific product could make it look inferior; for example, if you offer to replace any phones that break within the first six months of use, consumers might believe you’re expecting phones to break within the first six months of ownership, which is a sign of an inferior product.
  • Development time. Finally, to have an effective protection plan, you need to invest time and money into its development. You need to perform detailed risk assessments, cost analyses, and market research to understand exactly how and why a specific plan could operate. This isn’t always the best investment; if you’re a new business, you’d be better off spending your time researching the quality and appeal of your core products.

Ultimately, the value of a product protection program depends on dozens of variables, including the types of products you’re offering, the demographics you’ll be catering to, the research and underwriting you’ll be able to perform, and how thorough you are in your testing and follow-through process. If you have the money to spend on research (and trial and error), they can be highly valuable. Otherwise, stick to a minimum viable product, and only add to it as you become more confident in your future offerings.

Larry Alton
Larry Alton is an independent business consultant specializing in social media trends, business, and entrepreneurship. Follow him on Twitter and LinkedIn.


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