Service plan
Encyclopedia
A service plan is a contract
to purchasers of products for an additional fee. While service plans resemble extended warranties
, there are several important differences between the two, often cited by retailers that sell them.
. While the typical service plan does require preventative and routine maintenance to be taken in accordance with the manufacturer's warranty, it does not actually require a product to fail or malfunction under the same conditions. Service plans are also active from the date of purchase, unlike extended warranties, which become active when the manufacturer's warranty expires, meaning products can be purchased with service plans that end before or at the same time as the manufacturer's warranty.
The key distinction is that a warranty strictly covers defects in workmanship and materials, while service plans cover product failure in general with a list of exclusions. While the exclusion list includes most situations that would disqualify a product from warranty coverage, there are things that fall outside the product's condition that aren't excluded, such as power surges. However, this is offset by the infrequency of covered conditions, and misinterpretation. For example, a lightning strike is considered an environmental cause, and consequently is excluded from most service plans, even if they claim power surge protection.
To help differentiate from manufacturer's warranties, service plans occasionally come with additional benefits, such coverage for theft or accidental damage, replacements if a product fails a given number of times ("no lemon policy"), access to additional services, priority service and technical support.
Generally, if an item can be serviced in-store by the retailer, it will be. Some items like home theater equipment are repaired on-site with the retailer covering the cost. If the product can't be serviced by local technicians, then the items are sent to the manufacturer to be serviced. If the item is not serviceable or service is too expensive, the retailer will simply replace the product, or issue store credit for a newer model.
Replacement options may present an advantage over an RMA
if the customer is disrupted enough by a product's absence (such as computer upgrades), but the low failure rate of the products and the ability to buy temporary substitutes usually offsets the price. Some items such as low-end headphones may consistently fail before the end of the coverage period, which can be advantageous.
). In these cases, service plans are usually bundled with additional high-margin services, such as phone support, at reduced prices to add to the perceived value of purchasing them.
Some retailers that offer service plans include Sears
(Master/Repair Protection Agreement/Merchandise Replacement Agreement), OfficeMax
(MaxAssurance Warranty Plan), Best Buy
(Product Service Plan/ Replacement Plan, Geek Squad Black Tie Protection Plan), CompUSA
(Technology Assurance Program), hhgregg
, Office Depot
(Performance Protection Plan), Radio Shack
(Replacement Plan/ Repair Plan), Staples
(Technical Support and Protection Plan/ Product Replacement Plan), Ritz Camera Centers
(Extended Service Plan), Target
(Extended Service Plan), Consumer Priority Service
(Extended Service Plan) and Brand Source (Expert Protection).
Contract
A contract is an agreement entered into by two parties or more with the intention of creating a legal obligation, which may have elements in writing. Contracts can be made orally. The remedy for breach of contract can be "damages" or compensation of money. In equity, the remedy can be specific...
to purchasers of products for an additional fee. While service plans resemble extended warranties
Extended warranty
An extended warranty, sometimes called a service agreement, a service contract, or a maintenance agreement, is a prolonged warranty offered to consumers. The extended warranty may be offered by the warranty administrator, the retailer or the manufacturer. Extended warranties cost extra and for a...
, there are several important differences between the two, often cited by retailers that sell them.
Differences from warranties
A service plan is a separate policy from the manufacturer's warrantyWarranty
In business and legal transactions, a warranty is an assurance by one party to the other party that specific facts or conditions are true or will happen; the other party is permitted to rely on that assurance and seek some type of remedy if it is not true or followed.In real estate transactions, a...
. While the typical service plan does require preventative and routine maintenance to be taken in accordance with the manufacturer's warranty, it does not actually require a product to fail or malfunction under the same conditions. Service plans are also active from the date of purchase, unlike extended warranties, which become active when the manufacturer's warranty expires, meaning products can be purchased with service plans that end before or at the same time as the manufacturer's warranty.
The key distinction is that a warranty strictly covers defects in workmanship and materials, while service plans cover product failure in general with a list of exclusions. While the exclusion list includes most situations that would disqualify a product from warranty coverage, there are things that fall outside the product's condition that aren't excluded, such as power surges. However, this is offset by the infrequency of covered conditions, and misinterpretation. For example, a lightning strike is considered an environmental cause, and consequently is excluded from most service plans, even if they claim power surge protection.
To help differentiate from manufacturer's warranties, service plans occasionally come with additional benefits, such coverage for theft or accidental damage, replacements if a product fails a given number of times ("no lemon policy"), access to additional services, priority service and technical support.
Methods of service
Service plans vary in how an item is serviced. Some items may be serviced by the retailer's technicians, some may be sent out for repair, some may ship a replacement to the customer, some may be replaced by the retailer with a new item from the store inventory, or exchanged for store credit.Generally, if an item can be serviced in-store by the retailer, it will be. Some items like home theater equipment are repaired on-site with the retailer covering the cost. If the product can't be serviced by local technicians, then the items are sent to the manufacturer to be serviced. If the item is not serviceable or service is too expensive, the retailer will simply replace the product, or issue store credit for a newer model.
Economics
Whether an extended service plan is worth the extra cost depends on the item and the perceived value by the consumer. Basic service plans on desktop computers, for example, typically come close to the actual average repair cost of a system, with the retailer using the service plan as a way to keep the customer from going to a competing service center. Support options can be beneficial to consumers who are unfamiliar with the use and maintenance of a computer.Replacement options may present an advantage over an RMA
Return Merchandise Authorization
A Return Merchandise Authorization , sometimes Return Merchandise Agreement or ' product repaired or replaced or in order to receive a refund or credit for another product from the same retailer or corporation within the product's warranty period.The RMA process and the issuance of an RMA is a key...
if the customer is disrupted enough by a product's absence (such as computer upgrades), but the low failure rate of the products and the ability to buy temporary substitutes usually offsets the price. Some items such as low-end headphones may consistently fail before the end of the coverage period, which can be advantageous.
Presence among retailers
Service plans are seen mainly in office stores and electronics retailers, largely because of perceived fragility of electronics hardware and insecurity over the use of refurbished product. Some items such as computers and sale items produce very little profit for retailers, so selling service plans and accessories is essential to profiting from the transaction (see Loss leaderLoss leader
A loss leader or leader is a product sold at a low price to stimulate other profitable sales. It is a kind of sales promotion, in other words marketing concentrating on a pricing strategy. A loss leader is often a popular article...
). In these cases, service plans are usually bundled with additional high-margin services, such as phone support, at reduced prices to add to the perceived value of purchasing them.
Some retailers that offer service plans include Sears
Sears, Roebuck and Company
Sears, officially named Sears, Roebuck and Co., is an American chain of department stores which was founded by Richard Warren Sears and Alvah Curtis Roebuck in the late 19th century...
(Master/Repair Protection Agreement/Merchandise Replacement Agreement), OfficeMax
OfficeMax
OfficeMax , is an American office supplies retailer that was founded in 1988 and is headquartered in Naperville, Illinois.-History:On April 1, 1988, OfficeMax was founded in Cleveland, Ohio, by Bob Hurwitz and Michael Feuer. Hurwitz served as executive chairman and chief executive officer and Feuer...
(MaxAssurance Warranty Plan), Best Buy
Best Buy
Best Buy Co., Inc. is an American specialty retailer of consumer electronics in the United States, accounting for 19% of the market. It also operates in Mexico, Canada & China. The company's subsidiaries include Geek Squad, CinemaNow, Magnolia Audio Video, Pacific Sales, and, in Canada operates...
(Product Service Plan/ Replacement Plan, Geek Squad Black Tie Protection Plan), CompUSA
CompUSA
CompUSA is a retailer and reseller of consumer electronics, technology products and computer services. Its headquarters are in Miami, Florida.Until its reorganization, CompUSA, Inc. was a wholly owned subsidiary of U.S. Commercial Corp S.A.B...
(Technology Assurance Program), hhgregg
Hhgregg
hhgregg Inc. or Gregg Appliances Inc. is a publicly owned and operated appliance and electronics retailer in the Midwest, Northeast, and Southeast United States with over 3,100 employees operating stores in 16 states including Alabama, Delaware, Florida, Georgia, Illinois, Indiana, Kentucky,...
, Office Depot
Office Depot
Office Depot is a supplier of office products and provides many services. The company's selection of brand name office supplies includes business machines, computers, computer software and office furniture, while its business services encompass copying, printing, document reproduction, shipping,...
(Performance Protection Plan), Radio Shack
Radio shack
Radio shack is a slang term for a room or structure for housing radio equipment.-History:In the early days of radio, equipment was experimental and home-built. The first radio transmitters used a noisy spark to generate radio waves and were often housed in a garage or shed. When radio was first...
(Replacement Plan/ Repair Plan), Staples
Staples, Inc.
Staples Inc. is a large office supply chain store, with over 2,000 stores worldwide in 26 countries. Based in Framingham, Massachusetts, United States, the company has retail stores, serving customers under its original name in Austria, Brazil, China, France, Germany, India, Italy, Norway,...
(Technical Support and Protection Plan/ Product Replacement Plan), Ritz Camera Centers
Ritz Camera Centers
Ritz Camera & Image is a photographic retail and photofinishing specialty store, headquartered in Beltsville, Maryland. The company currently owns and operates a chain of approximately 300 locations throughout the United States...
(Extended Service Plan), Target
Target Corporation
Target Corporation, doing business as Target, is an American retailing company headquartered in Minneapolis, Minnesota. It is the second-largest discount retailer in the United States, behind Walmart. The company is ranked at number 33 on the Fortune 500 and is a component of the Standard & Poor's...
(Extended Service Plan), Consumer Priority Service
Consumer Priority Service
Consumer Priority Service is an international provider of repair services and extended warranty solutions for the consumer electronics and appliance industries. Corporate headquarters are located in Kings County, New York with regional offices in Newark, NJ and Florida...
(Extended Service Plan) and Brand Source (Expert Protection).