The Psychology of Warranties

'So why, asks a paper published in the December issue of the Journal of Consumer Research, do so many consumers still buy extended warranties?

... They concluded that the decision to buy a warranty had a great deal to do with a shopper’s mood.

If a customer is about to buy something fun (ie, a plasma television rather than a vacuum cleaner), he will be more inclined to splash out on extra insurance. This is because consumers value “hedonic” items over utilitarian ones, regardless of the actual price tag. This is especially true if the item is on sale, as finding an unexpected bargain leaves buyers feeling flush and pleased. The study also found that poorer consumers are more likely to buy “potentially unnecessary and overpriced insurance”, because they are more worried about the expense of replacing a product if it breaks.

The popularity of warranties should logically depend on the likelihood of a product’s failure, says Mr Kalra. But although most policies go unused, he admits that the emotional tranquillity that comes with buying a new warranty is not in itself without value, even if “rationally, it doesn’t make sense”.'

- 'The psychology of warranties' (Economist)

Comments

King said…
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King said…
It's true.. But I feel, Consumers prefer extended warranty on high involvement products, irrespective of whether they are utilitarian or hedonic.. The brands earn a lot of revenue from such extended warranty/insurance schemes, as they understand the psyche of customers..
Prof.Ray Titus said…
Note...conclusions are based on 'research'...that hedonic tops utilitarian in warranties, despite same prices...

That's a better understanding of psyches...research driven understanding...not gut 'feel'...

Also note, Utilitarian involvement is different from hedonic involvement...the risks dictating involvement is different...

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