A Study on consumer preference towards purchase of durables extended warranties from Indian modern retail stores

In India, selling extended warranties on consumer durable products is a rapidly expanding business for modern retail stores. Modern retail or modern trade as the name suggests are large organized retailers with chain stores across various geographies. There is a time bound warranty provided to the customers by all the major electronics manufacturers on the electronic, digital and durable goods sold in India. In addition to this, many modern retailers sell extended warranties with electronic products as a value add and a market differentiation tool. An extended warranty (EW) is a contract that provides limited indemnification for the breakdown of the underlying electronics asset due to mechanical or electrical breakdown. The percentage of consumers buying the optional extended warranties range from 20% on products such as automobiles to 75% on products such as home electronics and appliances (Desai and Padmanabhan, 2004). The other aspect that makes the extended-warranty business attractive is the substantial profit margin. Retail profit margins on extended warranties range from 30 percent to 75 percent and typically generate more profit than the products covered (The New York Times, 1999). In addition to generating direct profits, extended warranties are used as a means to retain customers. This paper in particular attempts to explore the consumer preference towards purchase of extended warranties offered at the modern retail stores in Bangalore. This research investigates the popular ways in which modern retailers provide information about the availability of warranty extensions to customers and aims to understand the purchase dynamics of such extended warranty programs.