When a company reports a 90% drop in net income due to weak sales, you know they’re in trouble.  Yes, Best Buy is in the crosshairs today.

In the past two weeks, I’ve had people close to me report about the pathetic extended warranty programs that Best Buy promotes like a cheap pimp to unsuspecting consumers.  In Best Buy’s world, a sold warranty is a “profit opportunity” for the company.  To the consumer, an extended warranty is viewed as “peace of mind” for a expensive transaction they’d like to protect just a bit longer.

THE BEST BUY EXTENDED WARRANTY SHELL GAME.

But herein lies the problem.  Best Buy claims that their extended warranties are designed to “protect” the buyer’s investment.  The droning pitch by every employee (I feel for them as they’re pressured into selling this dead horse) is unleashed onto the skeptical consumer each and every time.  Some buy and some don’t.

For my lady, she opted to buy Best Buy’s extended warranty for a Sony Vaio laptop. If I had known her then, I would have said, “Nyet! Nyet! Nyet!”  Extended warranty programs, for the most part, are a sham.  Especially those where the company doesn’t have a direct hand in the ownership of the program. 

So last week, she had to go in because the laptop’s battery died.  All smiles and with warranty in hand, she told the staff about her problem and offered up her warranty papers.  The staff, loyal to the Best Buy Reich, said, “HALT!”.  These papers are invalid.  You cannot pass GO.  You cannot use this “extended warranty” for a battery replacement.  It was in the fine print.  My lady responds, “At the time, your staff said this is a no-hassle warranty.  Don’t worry, it’s all covered”.  YEAH…RIGHT.

So while it easy to shove this piece of crap down the customer’s throat at the point of purchase, there are seconds of indecisiveness that always follows a Best Buy transaction.  Should I pay the extra $200 to cover me for three years or simply pass on the “great” deal.  Depending on your point of view, your economic circumstance, and your outlook on costly investments, your decision is either a wise one or a faulty one.  For my lady, it would have been a wise one based on the available information at the time.  She was looking for “peace of mind”.  Instead, Best Buy showed her the door. There goes the lifetime value of this customer.

But it doesn’t stop here.  Last night over a BBQ with some great reflections on Neil Armstrong, the space program and NASA, another friend of ours dug up the ugly “BEAST Buy Extended Warranty” experience he encountered for his HP computer.  Same story.  It’s not covered in the warranty.  It was in the fine print.  Cash-Grab-R-Us.

Great job Best Buy.  You’re on a roll.

However, it continues.  A few years back, my brother bought a Canon camera from the same Merchants of Venice and he decides to buy the extended warranty too.  The camera goes to hell and he endures the saga of waiting four weeks for Best Buy to find parts or some supplier willing to fix the unit at Best Buy’s cost.  You see, Best Buy didn’t fix it right away.  They elected to find the lowest cost to repair the unit and solve a customer’s problem.  During my brother’s pitch, he was told he would simply get an equal-value replacement with no hassles.  Yes, the classic “peace of mind” statement.  So, because Best Buy couldn’t find the most cost-effective solution, my brother had to wait four weeks!

Best Buy is on a tear!

In another example, one of my tenants bought a TV at Best Buy.  Yep. He got the extended warranty.  His TV goes ballistic and he, too, must wait four weeks for his unit to get repaired by Best Buy. 

None of the examples above had Best Buy offer a “hassle-free” replacement guarantee like the pitch-men promised.  And what are the odds that you’d run into four scenarios where customers in your own circle had bad experiences?  Extremely bad luck or simply good odds that Best Buy’s extended warranty program screws the consumer over and over.

WHAT IS BEST BUY?

After all, what IS Best Buy?  Exactly, what is their differentiator in the marketplace?  Is it their full selection of consumer electronics under one-roof?  Yeah, everyone else is doing that.  Is it their bottom-of-the-barrel pricing and price-matching?  Yeah, others do the same thing.  Is it the extended warranty program for hassle-free purchases? Um, yeah right.  So what exactly does Best Buy bring to the table that other consumer electronic retailers don’t?  None of them stand out for anything except the perception of competitive pricing.  Big deal. 

Well folks, a race to the bottom on prices isn’t a long-term differentiator.  Sure, Walmart’s “effect” has proven this model can work but their business model has decimated small business as a result.  But is there loyalty to Walmart?  Nope.  If I find a better deal somewhere else, I’m going to buy it there.  I have no brand loyalty to Walmart and in fact, carry a negative perception because of their macro business practices, employee standards, and their “Everyday Low Prices” mantra.  The only innovation they’ve brought to the table is in supply chain optimization, buying power, and logistics to compete against others.  Of course, if you feel this is a huge differentiator as a consumer, all the power to you.  It’s a great case study for Harvard Business School and I get it — appreciate it. But we’re really only talking about prices here.  There’s nothing really revolutionary here once someone has done it first. Sure, you gain happy consumers and ecstatic shareholders and happy bonuses for Walmart management, but you gain unhappy suppliers and moderately happy employees.  But Walmart doesn’t really gain any lifetime loyalty for anything beyond low prices.  That’s a suckers game for as long as suppliers continue to work to Walmart’s buying power until there are alternatives in the market.

In today’s world, your company has to stand for something.  Something so powerful and compelling that people talk about it…on blogs, on twitter, on Facebook, on Google+ and Quora.

What does Best Buy even stand for? I think most people know.  They’re after my hard-earned money!  So they get all the bad social traffic about their poor warranty programs and Walmart gets all the nasty coverage about how they wipe about small business, squeeze suppliers and employees.  I can’t remember a time when I heard anyone blabbering about Walmart’s low prices.  Boring.

BACK TO EXTENDED WARRANTIES

At the BBQ, I tell my friend and my lady about Apple’s Applecare program.  In existence since the company’s formation, this program has delivered untold “peace of mind” to the masses.  I always buy Applecare for all my products.  Always.  MacBooks.  Desktop Macs. iPhones. iPads.  The works.  The price varies depending on the product.  In most cases, the Applecare “investment” appears like a cash giveaway because Apple customers never take advantage of the program due to Apple’s quality products.  That said, there are times when Apple doesn’t sell apples but instead sells a few lemons.  It happens.  When I bought my late-2008 Macbook unibody, I bought the warranty six months into the purchase.  With Apple, you don’t need to buy the warranty at time of transaction.  Go figure!  You have up to a year to buy the Applecare warranty to protect your investment.  Best Buy couldn’t handle that and really, it wouldn’t be up to them because it comes down to the original equipment manufacturer.

Like most batteries, they eventually die.  My Macbook battery died in its third year of use.  So I happily took my Macbook to the Eaton Centre Apple Store and told them my battery was toast.  The Apple Store employee took the battery into the back of the store, they checked the lifetime charges of the battery that confirmed end of life.  The employee returns in seven minutes with a new battery replacement and makes me sign a few papers and I am on my merry way.  

That’s hassle free, dammit.

No one should ever buy an Extended Warranty from any “third-party” like Best Buy because they don’t own the complete process.  They instead source out solutions to solve your problem even if it takes them a long-time to find that solution.  Great for Best Buy.  Bad for you.  Rarely have I heard about an exchange for equal value scenario with Best Buy’s extended warranty if a solution can’t be found because they’ll go to great lengths to find a fix even if it takes weeks.

I am actually quite surprised at the void in the consumer electronics industry when it comes to warranty programs.  You would think most companies would view such programs as a lifetime value program to build “customers for life”.

Since the ugly Best Buy experience with her Sony Vaio laptop, I’ve converted my lady into an EXTREMELY happy iMac customer with an Applecare warranty in-hand.  Besides the quality of the product, she simply loves Apple’s focus on simplicity and design. Our friend at the BBQ is now considering a Macbook for the Christmas shopping season based on my personal experiences and the fact that he, too, faced the same bad warranty experience with a product purchased at Best Buy.  How do you like them Apples?!

The Message to “Brand” Retailers

Your message must stand for something more than prices alone.  Everyone is price conscious today.  However, if I get a great price for a product that falls apart in less than a year and then I get shafted again with an “extended warranty” filled with fine-print that protects Best Buy vs. the consumer, I am not going to buy from you again.  Simple as that.

Warranty Programs should be about lifetime customer value and retention.  For Best Buy, it appears their extended warranty programs have been designed to give the illusion of “peace of mind” protection but in fact, lead to customer attrition over the measly $200 they want to extract from consumers.  Awfully short-sighted, if you ask me.

My Whirlpool/Maytag’s Extended Warranty Program Experience - No Better

Recently, my mom’s washer broke down. When I was a kid, big ticket appliances outlasted Presidents and Prime Ministers for several terms.  Now, you’re lucky if the appliance will last longer than a one-term President.  Unfortunately, this particular washer broke down just under four years barely eking out one Obama term. 

HOPEless.  

So, My brother/I make the call to Whirlpool/Maytag to get the unit repaired.  We wait a week, a technician arrives, who then tells us the product is a “write-off”.  The parts and repair are too expensive.  We’re told by the technician to call Whirlpool to get credited out.

Now, the fun begins.

My brother calls Whirlpool and they tell him that it must be repaired by the “extended warranty company” (Huh, we have a Maytag Warranty Certificate) because they don’t offer credits.  He asks, “So what am I supposed to do?”.  Whirlpool tells him to call Maytag and does before that customer service department tells him they’re not involved in this process and must call Whirlpool AGAIN.

Back and forth she goes!

We’re now two weeks into shell game with Whirlpool Corporation.  I decide to call Whirlpool again and tell them what are our options.  The customer service rep says, “You must call your extended warranty company to approve the repair.”   

What the bleep?

To the rep, “Let me get this straight.  I must work on your behalf to sort out this mess? Why am I calling any third-party company to approve this repair?  The warranty certificate has Whirlpool and Maytag written all over it.  WHO IS this third-party company because I don’t see any reference to it on the warranty certificate.”  

This is utter nonsense.  

I then call the original store where it was purchased and tell them about our dilemma.  The lady on the other end of the call promises to call me back the same day to sort this out for me.  She never does.  I wait another day and there’s no return call.

Fantastic.

I decide enough is enough.  The warranty purchase was a significant amount and is set to expire in 2013.  I decide to write a long, detailed explanation to the media departments of Whirlpool and Maytag chastising them for this experience.  After all, do we really think a 70+ year old mom could even begin to figure out how to handle this?  Heck, we don’t even know what had to be done. Without her children, she’d be without a washer and would have simply bought another one.  

That’s absolutely not right.  

My email results in a call 48 hours later from the executive offices of Whirlpool/Maytag.  I am informed on the call that the technician did not complete an entry in the system (huh?), the washer was not a write-off and that the parts to repair the unit were available and the process was underway to resolve this matter. “Thanks”

In the end, the washer was repaired under warranty but it took five weeks to resolve this matter involving our effort — yes, the customer — chasing down various departments to get Maytag/Whirlpool honour their obligations.  

What I saw was a lot of buck passing and an unengaged customer service department NOT really focused on the customer.  Resolution only accelerated when I communicated the matter to the upper levels of the organization with a direct threat that I would publicize this matter through social networks.

That shouldn’t be the way things work.

The Maytag/Whirlpool was purchased by my mother because of her brand perception of Maytag quality thanks to decades of “programming” that the “Maytag man” cares.   The Maytag man was always about dependability, reliability and quality of service.  Was he?

What’s messier is the fact that Whirlpool falls under the Maytag umbrella causing brand confusion when it came to the warranty program.  The product was Whirlpool but the warranty certificate was Maytag (called Dependability Plus - uhuh).  However, we discover through all this that a company manages the “warranty program” while Maytag/Whirlpool delivers the technicians.  Go figure.

CLOSING REMARKS

If you want peace of mind for your next computer, then buy Apple.  Ignore all the nonsense out there about “Apple sucks” and this is better.  You are the customer and you have a right to own a quality product for the money you spend with what, I strongly believe, is the best warranty program in the business.

However, if Apple goes sideways, you have every right to walk.  

It’s up to consumers to move the bar forward and force companies to think about the customer transaction from end-to-end: from the first purchase through the life of the warranty. 

Stop buying garbage and useless extended warranty programs until the companies that dish them out truly mean they care about the customer. Once companies stop thinking about customers as a numbers / churn game and looks at them as a potential lifetime customer, the customer and company will benefit. Do you think Apple is influenced by what shareholders think?

How do you think Toyota won the game against GM?