Extended warranties – Extra expense or extra security?

I got asked a new question last night at a photo shoot I was doing. One of the guests wanted my opinion about the worth of buying an extended warranty for a new camera she was considering purchasing. Personally I’ve never bought one for my camera equipment as most, if not all, equipment is guaranteed by the manufacturer. ¬†Both Canon and Nikon have factory repair centers in the Greater Toronto Area. Also I have several camera bodies so if one goes down, all is not lost.

Most reviewers suggest avoiding the pressure to buy an extended warranty. Cnet Reviews has a good piece on it.

The guest last night said when she was negotiating the sales price of a new camera the quote from the salesperson changed substantially when she decided to decline the extended warranty being pushed on her. Here’s how it works: Camera retailers make around 15% plus or minus a percentage point or so based on the published list price. The retailer takes around five percent right off the top and the sales person gets to play with the rest. Sales people are paid crap and make their living on the commission they’re paid based on the amount of profit they keep for themselves. So when a salesperson says I can give you five percent, they’re keeping five percent or so for themselves.

This is fair enough. Everyone’s got to get paid so they can pay the rent and eat. But where it gets profitable for the retailer and the salesperson is on the sale of accessories like lenses, frames and memory cards which can have as much as a 50 per cent markup. And then there’s extended warranties. Retailers buy extended warranty programs from companies that independently sell them to the retailer. The profit margin on extended warranties is huge as they cost the retailer pennies on the dollar. Salespeople make a lot more money selling extended warranties than just cameras and lenses. And as our potential camera buyer found out, the actual price you’re quoted depends on whether or not you agreed to an extended warranty.

Now having said all that, there will be a certain percentage of cameras that fail. The retailer knows this as does the company that sells the extended warranty. It’s the cost of doing business but it’s a pittance compared to the revenue that extended warranty schemes produce.

And, worse, in this difficult economic time, if the retailer goes out of business you may find your expensive extended warranty has died with them.


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