* In a message to Steve Brack on 11-03-97, MATT SMITH said the following:
SB> MS>     Many places try hard to push extended warranties on customers 
SB> buying 
SB> MS> electronic goods, because the profit in them is way more than on 
SB> the 
SB> item 
SB> MS> itself.
SB> 
SB>         It's like the state lottery.  You are wagering that eventually
SB>         your investment will pay off, and the state is wagering that
SB>         it won't have to pay out.  With the service plan, the plan
SB>         administrator (a separate company) wagers that no matter how
SB>         many thousands or millions of instances the product will be
SB>         used in the course of 3, 4, 5, or 6 years, it will never fail
SB>         to perform exactly as it did on the date of purchase.
MS) 
MS)     And the fact that extended-warranty firms can make a profit says 
hich
MS) side is generally correct.
        The extended-warranty firms make money just like insurance
        firms do, by using the money they collect to make more money,
        via investments & other vehicles.  Customers who don't pursue
        their warranty rights by having all (even minor) problems
        repaired within the warranty period add gravy to their income.
        Since Radio Shack doesn't bear warranty expenses, we have no
        incentive not to fix any problem that arises.
SB>         The customer wagers that, some moment in the next 3, 4, 5, or
SB>         6 years, some part of the item, whether it be a rechargable
SB>         battery pack, a knob, or a PC board assembly, will cease to
SB>         function as well as it did on the date of purchase.  
MS) 
MS)     How much does a knob sell for?  A rechargable battery pack?
        Knobs sell for about $2.00 each in singles, presuming the
        appropriate knob is even orderable.  Rechargeable battery
        packs sell for anywhere from $8 to $100, depending on the size
        & composition of the pack.  Our basic cordless phones have
        service plans which sell for $24.95, and which entitle the
        customer to free replacement batteries at least every year for
        the next three years.  The batteries sell @ RS for $9.99 each,
        & are available at other retailers, like Montgomery Ward, for
        $13 & up.  Even if the customer does nothing else but ask for
        his free battery every year, he comes out ahead by about $5.
MS)     As for the PC board, most of the time the "electronics" are
MS)     buggy from Day One or not at all.
        While a bug may be present from the date of manufacture, it
        may not show up for months or years.  A bad solder joint may
        not break down until the manufacturer's warranty is over.  A
        poorly manufactures or installed IC may not cause a noticable
        problem until the customer flips a different switch than he
        did previously, or until the thousandth time he flipped that
        switch & created a tiny power surge in that circuit.
        The service plan is a peace-of-mind issue for many customers,
        who consider having a "no surprises" product for five or so
        years to be worth the added expense.  It's not a scam.  It
        is an offer of a service at a flat price that the customer
        may, otherwise, need to pay much more for.  We insure our
        homes, even though 99% of the time we never need to collect.
        Likewise, we insure our cars, our health, & our lives, with
        only the latter of these leading to an inevitable payoff.
        As always, these are my opinions, not Radio Shack's.
 -- SPEED 2.00 #2712: Conscience, n.: Inner voice which gives you the odds.
--- GEcho 1.00
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