This post is sponsored by Cover Genius.
Retail today is about much more than simply selling products. With consumers constantly connected to their mobile devices -- which enable them to access endless aisles of shopping -- and Amazon offering countless products at low prices with seemingly hyper-speed delivery, retailers have been working to find ways to differentiate themselves and draw in new and repeat customers.
One of the ways that has proven successful is adding services that take the buying experience beyond just the purchase of physical goods. Consumers want to be able to easily find the relevant service solutions at the retailers they already trust with their purchases.
Product protection and warranties are good examples of services that retailers can easily offer and that their customers want. Ninety-four percent of customers who invest in warranties to protect product purchases prefer to buy those warranties from the retailer that sold them the physical product, according to data from insurance technology firm Cover Genius. Meanwhile, extended warranties go much further than bare-bones limited warranties to offer coverage for accidents like spills, cracks and tears, and claims processes are easier than they have ever been, thanks to online forms that can often be approved and paid out instantaneously.
Product warranties are a natural addition to the purchase journey, and a good fit for retailers looking to establish loyalty and extend engagement with shoppers beyond the buy. So why aren't more retailers seizing the opportunity?
According to Peter Paine, head of retail partnerships for the Americas at Cover Genius, it's largely due to three major misconceptions about warranties:
Misconception No. 1: Warranties are just another upsell that distract from the purchase of physical merchandise
Many retailers see product warranties and protection services as an upsell that will turn the customer off when they're in the middle of completing their product purchase, according to Paine. They worry that rather than establishing trust and loyalty with shoppers, offering warranties at the point of purchase could leave the customer with an unfavorable feeling toward the retailer.
However, that is not the case. In reality, customers are more open to considering the addition of a warranty after they’ve decided to make the commitment and buy the physical item.
"It's actually a service customers often seek out and want when purchasing a big-ticket item like appliances, fine jewelry, furniture or electronics," Paine said. "Purchasing a warranty on that kind of investment item gives them peace of mind."
Unfortunately, traditional insurance companies haven't done the best job when it comes to customer satisfaction or customer experience, so shoppers might not have the most positive associations with services such as warranties and product protection, he added. But this is where an opportunity emerges for retailers to fill that gap and make that connection for their shoppers, in turn establishing positive engagement and loyalty.
"Customers are more likely to purchase warranty protection from the retailers they already shop with, since they have an established relationship and level of trust with those retailers," Paine said.
Misconception No. 2: There are limited financial benefits to selling product warranties
Product warranties might not have always had the best reputation, but traditionally, they've actually been one of the most profitable parts of retail businesses, Paine said. And in today's highly competitive pricing environment, profit-rich business aspects like warranties should not be overlooked. The growth of e-commerce has made finding ways to build in additional profits paramount for retailers, who now have to contend with price matching -- which has made price wars fiercely competitive.
"Retailers can leverage the fruitful sales margins of warranties to offset the slim margins of merchandise," Paine said.
It's a win-win for retail businesses and customers alike: Cover Genius data show that one-third of customers who purchase products that cost more than $500 also buy protection for those products. With trends among millennial shoppers and other groups moving toward investing more in experiences and less in expensive products, these $500-and-up items are valuable purchases that consumers would likely want to protect.
Misconception No. 3: Retailers have to invest significant resources and effort in order to add the capability to offer warranties
Even for retailers who understand the value of offering product warranties, they might be unsure of where to start or think that adding warranties is a complicated process. But that isn't the case, Paine said.
"Having the right technology partner removes the headache involved in integrating warranty services into retail businesses," he said.
Insurance technology firms, like Cover Genius for example, offer front-end and back-end integration solutions, along with the ability to integrate several different types of warranty products. Through the Cover Genius XCover platform, retailers can co-create the right types of warranty products for their business and integrate them fully into their systems.
And a well-integrated warranty offering encourages customer loyalty, in the end, Paine added. For instance, customers looking to make a claim on a warranty would come straight back to the retailer they made the purchase from in the first place, causing them to become further invested in that retailer's ecosystem.
"After a great claims experience, the customer would only be more loyal to the brand and likely to come back next time," he said.
While some aspects of product protection and warranty services can be misunderstood, retailers who don't consider adding these types of offerings are missing out and are failing to offer customers a complete shopping journey, according to Paine.
"Without product warranties, retailers are only selling part of the solution to the customer. When a customer is shopping for merchandise, they're trying to solve a problem in their life. And if the customer can get the merchandise they need plus protection for that merchandise from a single retailer, they're solving the complete problem for that customer in the purchase journey," he said.