Context
The global consumers electronics market was estimated at $48.65 billion in 2020. The business disruption during the Covid pandemic encouraged consumers to subscribe to extended warranties, and it is now turning into a durable consumption pattern. As a consequence, the global consumers electronics is expected to hit $198.99 billion by 2030. Though this is certainly good news for product manufacturers, consumers subscribing to warranties against product failures often end up paying a 100% mark up for extended warranties in different product categories that do not prove beneficial from a financial point of view. In an article published in 2022 in the International Journal of Research in Marketing, Chark and Dhar investigate how certain characteristic of brands account for that somewhat irrational behavior.
Research questions
The starting point of this research lies in the two usual explanations for warranty subscriptions: perceived magnitude and probability of loss due to product breakdown. The authors argue that certain aspects of brand equity, such as subjective value (defined as high degree of liking, high evaluations in terms of overall quality, uniqueness and distinctiveness of the features) or popularity (defined as brand awareness, familiarity, knowledge about the brand), may impact warranty valuations by putting consumer focus on perceived value or/and likelihood of loss. Chark and Muthukrishnan therefore ask the following research question: how do subjective value of the brand and brand popularity impact extended product breakdown warranty valuations?
Method
To address this research question, the authors conducted 3 studies. In all studies, participants were either asked “spontaneously” (no deliberation) or under deliberation about their warranty valuations. In Study 1, 212 university students were polled about two brands – one of which was stronger than the other in terms of subjective value and popularity. Study 2 (conducted on 280 students) investigated the warranty valuation for two brands with the same popularity but different subjective values. An additional experiment was carried out on 284 students. Finally, in Study 3, 311 participants considered brands that differed in popularity but not subjective value. A supplementary experiment was conducted on 221 respondents.
Results
Consumers’ valuations towards extended product breakdown warranties change depending on whether they are asked to deliberate on this choice or not. Subjective value of the brand and brand popularity both impact consumer warranty valuation. Subjective value and popularity both increase consumer focus on value considerations, and popularity also increases consumer focus on breakdown likelihood when making this choice. This derives from three findings:
– When consumers spontaneously consider two brands – one being stronger than the other in terms of both subjective value and popularity, their willingness to pay for warranty is higher for the stronger brand (than for the less strong brand). However, when consumers are asked to deliberate on the causes and chances of product breakdown, the popularity of the stronger brand prompts them to remember positive information about this brand and deflate perceived product breakdown likelihood, which decreases willingness to pay for warranty for the stronger brand.
– When consumers spontaneously consider two brands that have the same popularity but differ in subjective values, their willingness to pay for warranty and warranty purchase intent do not differ between brands. However, under deliberation, the willingness to pay for warranty and warranty purchase intent for the high-subjective-value brand decrease. This is because the popularity of the high-value brand will prompt consumers to remembers positive information about the brand, while the popularity of the low-value brand will remind them of less positive information about the brand, thus decreasing the perceived need for warranty for the high-value brand.
– When consumers spontaneously consider two brands that have the same subjective value but differ in popularity, their willingness to pay for warranty and warranty purchase intent does not differ between brands. However, under deliberation, the willingness to pay for warranty and warranty purchase intent for the high-subjective-value brand increase. Indeed, the more popular the brand, the more available the information on product breakdowns. When evaluating warranty benefits, the instances of product breakdowns come more easily and in greater number for more popular brands than for less popular brands, thus inflating the judged likelihood of product breakdown for more popular brands.
Why is this article relevant for researchers?
This work is very novel in the way it contributes to the literature about warranties. While previous research focus on product or warranty attributes to determine consumer reactions towards warranty subscriptions, this article posits that characteristics of the brand actually influence consumer valuations of warranties. This opens avenues for research to investigate how other brand traits, such as trustworthiness, consistency, longevity, hedonism, utilitarianism etc., may impact warranty purchases.
The authors point out that uncertainty surrounding the product is another determinant of warranty subscription in some sectors. Future articles could study the impact of brand characteristics on perceived uncertainty.
Why is this article relevant for professionals?
This work is relevant for all institutions wishing to protect consumers. Consumers are often in a weak position when it comes to claiming their rights and sometimes need a higher authority to help regarding these matters. This article shows that forcing consumers to deliberate before subscribing to an extended guarantee may prompt them to deflate perceived likelihood of product loss, and consider the value and positive feedbacks of quality products. Interventions (for instance reminding consumers of the brand’s positive track record) may help consumers put into perspective product quality, breakdown likelihood and warranty price.
On a less ethical note, this article also provides manufacturers with tools to surf on the consumers’ naiveté. It reminds them that brand popularity is a double-edged sword, since consumers will be easily reminded of positive and negative elements concerning the brand. Moreover, it shows that deliberation plays against the manufacturer in the warranty subscription process. At best, this information legitimates advertising the benefits of warranties, discounted warranties, improved advantages of warranties, all of which may end up in warranty wars, like in the automotive sector. In this vein, Whoop (a sports tech company) announced a lifetime warranty to cover replacement of devices at a lower price. At worst, the present findings account for cutting short opportunities for consumers to deliberate (like pressuring them), thus increasing the odds that they will subscribe to the warranty.