Extended warranty and its impact on perception in sales promotion of durables
Abstract
Purpose – The aim of the paper is to determine the perception of extended warranty when communicated by retailer during the sales promotion of durable products (e.g. refrigerators). We consider perception as five signals or conceptual dimensions in retail context. The research question is: What perception creates the extended warranty? The dimensions studied can increase or decrease the value and therefore attractiveness of the product. In this sense, extended warranties are a tool that retailers can use to change customers’ attitudes towards a product. There is little primary research that shows how communication of extended warranties influences customer perception and which signals are relevant to customers and retailers.
Research methodology – A survey was conducted on a sample of 180 respondents. The measurement model includes extended warranty as a construct with five observed variables related to customer sentiment (risk relief, no cost, quality, price and brand). Each sentiment signal is tested as a separate hypothesis. The model was tested with SEM and CFA was used to interpret the data.
Findings – In advertising theory, the extended warranty is seen as a signal of better quality and reliability, but we have shown that it creates a sense of risk relief in the purchase decision.
Research limitations – Extended warranties can give rise to perceptions other than those examined in the measurement model. For different categories of consumer goods, the warranty features can be perceived differently.
Practical implications – Retailers design promotional activities by communicating extended warranty to customers. As a result, they do not perceive promoted object as a more expensive due to warranty provision, even though it offers value to customers.
Originality/Value – The originality of the article lies in the different perceptions that arise when customers are confronted with an extended warranty as part of the product promotion in a store. The empirical model proposes a construct of perception of the extended warranty mediated by a unique combination of signals such as risk relief, no cost sentiment, quality, price, and brand value. Only two signals, namely risk relief and quality, influence purchase intention.
Keyword : extended warranty, durables, perception, promotion, SEM
This work is licensed under a Creative Commons Attribution 4.0 International License.
References
Arikan, E., Yilmaz, E., & Bodur, M. (2016). Expanding the boundary of brand extensions through brand relationship quality. Journal of Business Economics and Management, 17(6), 930–944. https://doi.org/10.3846/16111699.2016.1220420
Albaum, G., & Wiley, J. (2010). Consumer perceptions of extended warranties and service providers. Journal of Consumer Marketing, 27(6), 516–523. https://doi.org/10.1108/07363761011078253
Bandalos, D. L., & Finney, S. J. (2019). Factor analysis: Exploratory and confirmatory. In G. R. Hancock, L. M. Stapleton, & R. O. Mueller (Eds.), The reviewer’s guide to quantitative methods in the social sciences (2nd ed., pp. 98–122). Routledge. https://doi.org/10.4324/9781315755649-8
Boulding, W., & Kirmani, A. (1993). A consumer-side experimental examination of signaling theory: Do consumers perceive warranties as signals of quality?. Journal of Consumer Research, 20(1), 111–123. https://doi.org/10.1086/209337
Chark, R., & Muthukrishnan, A. V. (2022). Brand effect on extended warranty valuation: Subjective value versus popularity. International Journal of Research in Marketing, 39(4), 1082–1092. https://doi.org/10.1016/j.ijresmar.2022.01.004
Cordella, M., Alfieri, F., Clemm, C., & Berwald, A. (2021). Durability of smartphones: A technical analysis of reliability and repairability aspects. Journal of Cleaner Production, 286, Article 125388. https://doi.org/10.1016/j.jclepro.2020.125388
Cox, A. D., Cox, D., & Zimet, G. (2006). Understanding consumer responses to product risk information. Journal of Marketing, 70(1), 79–91. https://doi.org/10.1509/jmkg.2006.70.1.79
Davidavičienė, V., Raudeliūnienė, J., & Viršilaitė, R. (2021). Evaluation of user experience in augmented reality mobile applications. Journal of Business Economics and Management, 22(2), 467–481. https://doi.org/10.3846/jbem.2020.13999
Dutta, S., Banerjee, S., Johnson, A., & Biswas, A. (2022). Overcoming the challenge of low familiarity: Can a weakly familiar brand signal quality with exceptionally strong warranty?. Journal of Business Research, 141, 737–754. https://doi.org/10.1016/j.jbusres.2021.11.078
Erdem, T., & Swait, J. (1998). Brand equity as a signaling phenomenon. Journal of Consumer Psychology, 7(2), 131–158. https://doi.org/10.1207/s15327663jcp0702_02
Estelami, H., De Maeyer, P., & Estelami, N. (2016). Determinants of extended warranty prices for consumer durables. Journal of Product & Brand Management, 25(7), 687–699. https://doi.org/10.1108/JPBM-09-2015-0971
European Commission. (2015). Consumer market study on the functioning of legal and commercial guarantees for consumers in the EU. Publications Office of the European Union. https://data.europa.eu/doi/10.2838/813430
European Commission. (2017). Study the costs and benefits of extending certain rights under the Consumer Sales and Guarantees Directive 1999/94/EC. Publications Office of the European Union. https://data.europa.eu/doi/10.2838/590766
Goldsmith, R. (2016). The Big Five, happiness, and shopping. Journal of Retailing and Consumer Services, 31, 52–61. https://doi.org/10.1016/j.jretconser.2016.03.007
Işçi, U., & Kitapçi, H. (2020). Responses of Turkish consumers to product risk information in the context of negative eWOM. Journal of Business Economics and Management, 21(6), 1593–1609. https://doi.org/10.3846/jbem.2020.13383
Jain, S. P., Slotegraaf, R. J., & Lindsey, C. D. (2017). Towards dimensionalizing warranty information: The role of consumer costs of warranty redemption. Journal of Consumer Psychology, 17(1), 70–80. https://doi.org/10.1207/s15327663jcp1701_10
Kelley, C. A. (1988). An investigation of consumer product warranties as market signals of product reliability. Journal of the Academy of Marketing Science, 16(2), 72–78. https://doi.org/10.1007/BF02723319
Kiran, K., & Mahesh, G. (2019). Protecting brands from product failure using extended warranties. Journal of Product & Brand Management, 28(7), 787–799. https://doi.org/10.1108/JPBM-09-2018-2019
Kline, R. B. (2016). Principles and practice of structural equation modeling (4th ed.). Guilford Press.
Kurt, D., Pauwels, K., Kurt, A. C., & Srinivasan, S. (2021). The asymmetric effect of warranty payments on firm value: The moderating role of advertising, R&D, and industry concentration. International Journal of Research in Marketing, 38(2), 817–837. https://doi.org/10.1016/j.ijresmar.2021.05.002
Lwin, M. O., & Williams, J. D. (2006). Promises, promises: How consumers respond to warranties in Internet retailing. Journal of Consumer Affairs, 40(2), 236–260. https://doi.org/10.1111/j.1745-6606.2006.00057.x
Maronick, T. J. (2007). Consumer perceptions of extended warranties. Journal of Retailing and Consumer Services, 14(3), 224–231. https://doi.org/10.1016/j.jretconser.2006.09.003
Mitra, A. (2021). Warranty parameters for extended two-dimensional warranties incorporating consumer preferences. European Journal of Operational Research, 291(2), 525–535. https://doi.org/10.1016/j.ejor.2019.12.035
Mueller, R. O., & Hancock, G. R. (2019). Structural equation modelling. In G. R. Hancock, L. M. Stapleton & R. O. Mueller (Eds.), The reviewer’s guide to quantitative methods in the social sciences (2nd ed., pp. 445–456). Routledge. https://doi.org/10.4324/9781315755649-33
Noll, J. (2004). Comparing quality signals: Are warranties better than advertisements to promote higher product quality?. International Review of Law and Economics, 24(2), 227–239. https://doi.org/10.1016/j.irle.2004.08.007
Onișor, L.-F., & Ioniță, D. (2021). How advertising avoidance affects visual attention and memory of advertisements. Journal of Business Economics and Management, 22(3), 656–674. https://doi.org/10.3846/jbem.2021.14546
Price, L. J., & Dawar, N. (2002). The joint effects of brands and warranties in signaling new product quality. Journal of Economic Psychology, 23(2), 165–190. https://doi.org/10.1016/S0167-4870(02)00062-4
Titko, J., Svirina, A., Tambovceva, T., & Skvarciany, V. (2021) Differences in attitude to corporate social responsibility among generations. Sustainability, 13(19), Article 10944. https://doi.org/10.3390/su131910944
Shimp, T. A., & Bearden, W. O. (1982). Warranty and other extrinsic cue effects on consumers’ risk perceptions. Journal of Consumer Research, 9(1), 38–46. https://doi.org/10.1086/208894
Vera, J., & Espinosa, M. (2019). Consumer involvement as a covariant effect in rethinking the affective-cognitive relationship in advertising effectiveness. Journal of Business Economics and Management, 20(2), 208–224. https://doi.org/10.3846/jbem.2019.8099
Xia, L., Kukar-Kinney, M., & Monroe, K. B. (2010). Effects of consumers’ efforts on price and promotion fairness perceptions. Journal of Retailing, 86(1), 1–10. https://doi.org/10.1016/j.jretai.2009.10.003