Consumer perceptions of extended warranties

The vast majority of US consumers purchase extended warranties when buying appliances and home electronics. Retailers promote extended warranties since they have high profit margins. Consumers buy extended warranties because they seek “peace of mind and freedom from financial outlays if their purchase needs repairs”. This study examines consumers’ perceptions of the terms of an extended warranty, specifically the length of the warranty contract using a mall-intercept method to identify 101 consumers who have purchased an appliance or home electronics product in the past 2 years. The study finds that a large majority of consumers misconstrue the retailer's “4-year” extended warranty as providing four additional years of coverage beyond the manufacturer's warranty when, in fact, the “4-year” extended warranty includes the manufacturer's warranty and is, therefore, only providing 3 years of “extended” warranty protection. Marketing implications are discussed.     

Appliance Warranties as a Market Signal?

Appliance warranties can be considered to provide a market signal of appliance reliability. However, the cost to consumers of obtaining enough information to interpret the signal causes the dispersion of warranty provisions to be limited. The more complicated the laws surrounding warranties, the greater the cost to consumers of warranty information. This makes warranties less effective as a market signal and reduces the variation in warranty provisions. Upon examination, appliance warranties for refrigerators, air conditioners, ranges, clothes washing machines, and television sets were found, consistent with this view, to vary relatively little.     

Promises,Promises: How Consumers Respond to Warranties in Internet Retailing

Past studies have shown that perceived risk is a critical determinant of purchase intention in non–store retailing contexts, including Internet retailing. Extant literature in physical retailing suggests that warranties can be a significant variable in reducing consumers’ perceived risk. We examine the role of Web site warranties in risk reduction and how warranty information interacts with retailer reputation and brand name as two other risk relievers in an online shopping environment. Results suggest that warranties can make a positive difference for online retailers with strong reputations with respect to perceived risk, perceived product quality, and purchase intentions. However, consumers are less influenced by warranty information when dealing with online retailers with weak reputations. For the other extrinsic cue, however, we find that warranty information does not have an effect when dealing with brand names, suggesting that a brand name’s impact on online risk reduction remains regardless of the presence of warranty information.     

New patterns of consumer protection under warranty law: Lessons from the U.S. magnuson-moss warranty act

Warranty law appears to be a relevant instrument for granting protection to consumers against product disappointment. However, empirical studies concerning some warranty markets both in the United States and in West-European countries show that there continues to be no bargaining on warranties between sellers and buyers, that the most serious risks are all allocated to the user of the product, and that consumers are generally not granted an actual opportunity of challenging a breach of warranty and getting adequate compensation for losses sustained. The Magnuson-Moss Warranty-Federal Trade Commission Improvement Act which was enacted in the United States in 1975 constitutes a first comprehensive and consumer-oriented reform of traditional warranty law. It foresees new patterns of consumer protection under warranty statutes, combining warranty substance regulation with warranty information, administration, and litigation procedures. This paper first describes the Act's major provisions; it also points out some of its deficiencies. Although criticisms are formulated against the Act's ideology or basic assumptions, it is the author's opinion that it represents a decisive step towards legislative and administrative participation in the formulation of warranties. The Act undoubtedly suggests some, though not identical, avenues of reform that legislators and authorities of European countries and confederations should now propose in order to increase consumer protection against defective or unsatisfying products.     

Lemon Laws: Intent,Experience, and a Pro-Consumer Model

Under deregulation, public policies regarding consumer rights and product warranties have shifted. This paper reviews the rationale for lemon laws, state legislation intended to help consumers resolve new car performance, and repair problems. It then compares consumers’ redress under these laws to redress under other remedies. Experience with Vermont's legislation, one of the most aggressive lemon laws, is reviewed and analyzed in detail as the basis for formulating public policy recommendations in this area.     

Warranty as a Signal of Quality: The Moderating Effect of Consumer Knowledge on Quality Evaluations

Prior research has shown that consumers use warranties as a signal of quality. This article explores whether prior knowledge moderates consumers' utilization of warranty information in evaluating product quality. In particular, we examine how prior knowledge impacts the relative use of warranty information when consumers are already aware of firm reputation. Indeed, we find that the extent to which warranty information is used in quality evaluations varies with prior knowledge. We report the results of two experiments, which somewhat surprisingly suggest that, for experts, a better warranty leads to perceptions of higher quality, regardless of firm reputation. Novices on the other hand, tend to perceive a better warranty as a signal of higher quality only when the firm is reputable but not when its reputation is low.     

Warranties: Continued Readability Problems After the 1975 Magnuson-Moss Warranty Act

A major thrust of the Magnuson-Moss Warranty Federal Trade Commission Improvement Act (MMWA) passed by Congress in 1975 is to make warranties “easy to read and understand.” This study examines readability levels for 121 warranties in ten categories of consumer durables. The warranties analyzed are found to require readability levels beyond what most Americans have attained. Limited warranties require significantly higher readability levels than full warranties. Results suggest the MMWA, since passage in 1975, may have increased the number of limited warranties and the difficulty of reading level.     

Even After the Magnuson-Moss Act of 1975, Warranties Are Not Easy to Understand

This study was designed to measure the complexity of written material in a selected group of consumer durable warranties. The Fog Index and the Flesch Count were used in determining complexity and readability of warranties. Readability levels were computed for 125 warranties in nine categories of consumer durables: washing machines, refrigerators, vacuum cleaners, color televisions, coffee-makers, can openers, stereos, bicycles, and automobiles. The results revealed that most of these warranties will be difficult to read for those with a high school education or less. As a result, the warranties examined in this study provide little protection against risk or claims for individuals who may not understand their specific terms as they are presently stated.     

Determinants of Fair Trade Product Purchase Intention of Dutch Consumers According to the Extended Theory of Planned Behaviour

The study reported in this paper investigated the determinants of fair trade (FT) product purchase intention among Dutch consumers according to the extended Theory of Planned Behaviour and determined whether the effects of those determinants differ between male and female consumers. To test the various research hypotheses, an online survey with 499 respondents from a Dutch research panel was employed. Results of the multi-group analysis using a structural equation modelling approach reveal that FT product purchase intention of both male and female consumers are predicated on moral obligation and self-identity. The impact of subjective norm on purchase intention is statistically significant for male consumers only. Analyses reveal that, indeed, the impact of subjective norm on FT product purchase intention is moderated by consumers’ gender.     

Home Warranties: An Analysis of an Emerging Development in Consumer Protection

Although warranty coverage on consumer products is a universally accepted form of protection, the extension of similar coverage to buyers of new and used homes is a developing practice. Home warranties serve a dual purpose: they reduce a homebuyer's risk of substantial financial loss, and protect the builder, seller or real estate vendor from legal liability should undisclosed material defects occur after a sale. In an effort to examine consumer reactions to home warranties, a mail survey was conducted of recent purchasers residing in four central counties of New York State. It was found that two-thirds of the 571 single-family homeowners who responded were aware of warranties on new housing and 97 percent were in favor of such coverage. Only 22 percent were aware of warranties for resale homes and 56 percent favored such coverage. Unexpected defects costing more than $100 were experienced by 55 percent of the sample. However, only 27 percent of the sample had defects which were warrantable under most current warranty programs.     

Attitudes and Motivations Toward Craft Beer Consumption: An Explanatory Study in Two Different Countries

This study adopts a revised model of the Theory of Planned Behaviour incorporating self-identity and desire for unique consumer products to understand and predict consumers’ motivation to drink craft beer in Germany (N=210) and Italy (N=211). Data were analysed using Partial Least Squares modelling (PLS) approach. The findings provide support that the extended TPB model is a useful tool for understanding the consumers’ choice to drink craft beer. The results confirm the major role played by consumers’ attitudes and self-identity. Mediation analysis indicates a potential indirect effect from self-identity, subjective norms and the desire for unique consumer products on individual behaviour both in the German and Italian sample. Implications for theory are discussed for further research developments within the context of consumption of crafted food products.     

Forging relationships to coproduce: A Consumer Commitment Model in an extended service encounter

Consumer commitment is essential to ensure the service success in extended and complex services, wherein the service drop-out rates are often appalling. To build a more robust consumer commitment theory and provide solutions for the critical issue of high service drop-out rates in complex and extended services, this study develops a model of consumer commitment and tests it using survey data from consumer clients in a national debt management program in the U.S. The results reveal that calculative commitment only leads to consumers’ intention to remain, whereas affective commitment leads to a broader range of coproduction behaviors (i.e., individual initiative and civic virtue). Moreover, besides consumers’ relationship investment, perceived organizational support enhances both types of consumer commitment. It also increases consumer compliance. This study contributes to the consumer commitment theory by examining additional drivers and behavioral outcomes of commitment and by revealing the differential effects of different types of commitment on behavioral outcomes.     

Promoting Interactive Decision Aids on Retail Websites: A Message Framing Perspective with New versus Traditional Focal Actions

Online retailers significantly benefit when consumers use interactive decision aids (IDAs). In this study, we investigate how to best design messages that promote IDA use. Using an extended message framing perspective, we propose that messages about consumers’ traditional action (searching) increase usage intentions more than messages about the new action (IDA use). Results from two experiments confirm that this holds across both high and low involvement categories and in particular when the traditional action frame is combined with a loss outcome. We also demonstrate that familiarity with the message's focal action mediates this effect.     

Personal Factors Related to Consumer Product Disposal Tendencies

Extended channels of distribution provide numerous options for consumers who wish to move still useful but unwanted products to other consumers. The rationales consumers use in choosing disposal options, including those resulting in redistribution, are described. Affect and demographic correlates for each disposition tendency provide information to help develop consumer behavior theory regarding redistribution, as well as provide strategic implications for extended channels.     

Unequal but essential: How subsistence consumer–entrepreneurs negotiate unprecedented shock with extraordinary resilience during COVID‐19

We use qualitative interviews to study subsistence consumers confronting the global, pervasive and extended challenges of COVID‐19, encompassing literally all realms of daily life. For subsistence consumers whose circumstances are filled with day‐to‐day uncertainty and a small margin of error to begin with, the pandemic has led to manifold uncertainties and a disappearing margin of error, with potentially lethal consequences. Their constraints to thinking and lack of self‐confidence arising from both low income and low literacy are magnified in the face of the complex, invisible pandemic and the fear and panic it has caused. Characteristic relational strengths are weakened with social distancing and fear of infection. Yet, subsistence consumers display humanity in catastrophe, and confront the uncontrollable by reiterating a higher power. Consumption is reduced to the very bare essentials and income generation involves staying the course versus finding any viable alternative. We derive implications for consumer affairs.     

The mediating influence of trust in the adoption of the mobile wallet

The technology of paying at the point-of-sale with a smartphone is available, but has not yet been accepted by consumers or retailers in North America. Retailers are reluctant to invest in the technology to upgrade their store equipment until there is a wider acceptance by the consumer. The research model in this study is based on the Technology Acceptance Model, which posits that consumers will accept the mobile wallet when they perceive usefulness. They discover features through informal learning and are concerned about trust. The model is extended with these constructs and empirically tested with a sample of Canadian consumers. The results, which show that perceived usefulness is a key influencing factor and that informal learning is mediated by trust, are of value to researchers and practitioners.     

Impact of trust and knowledge in the food chain on motivation-behavior gap in green consumption

The motivations and barriers of the actual green purchase behavior are as real as the product itself, which makes it a systematic process to examine the inconsistency between consumers' motivations and their actual behavior (motivation-behavior gap). The study aimed to clarify the direct and indirect effects of motivations on the purchase behavior of green food. The proposed conceptual model was adopted from the Motivation-Opportunity-Ability (MOA) framework and was extended by adding the serial mediation of consumer perceived knowledge and trust as major constructs. Data were collected from 1788 consumers in China. Results provided support for the model and showed that perceived knowledge about the food supply chain could be both barrier and a positive factor of consumers’ purchase behavior, which mainly depends on the trade-off between certification and planting knowledge. Differences in trust exist and consumers hold authorities and certification bodies more accountable than farmers and retailers. For the direct effects, food safety concern is positively associated with behavior, whereas environmental concern is not. Policymakers shall use the results to narrow the motivation-behavior gap, especially for emerging economies.     

Country matters: Executives weigh in on the causes and counter measures of counterfeit trade

In this article, we present the findings of a study examining the exploding problem of counterfeit trade via the opinions of U.S. executives as compared to their counterparts from Australia, New Zealand, South Africa, and Tahiti. Their responses provide insight as to how companies in different countries are attacking piracy and consumer complicity with counterfeit products. Per our study, executives in Australia, Tahiti, and the U.S. had similar perspectives: they viewed the seller as the main driver of counterfeit trade for reasons of profit. These executives perceived the demand for counterfeits as being driven by desirable product attributes and the ease of obtaining them. Likewise, they cited two anti-counterfeiting actions—site licenses and reduced price/rebates—as being able to reduce the demand for illicit products. In contrast, South African executives observed the main reason for piracy as weak enforcement of intellectual property (IP) and the lure of exorbitant profits, with little value in any anti-counterfeiting actions other than special packaging. These executives put forth that South African consumers are complicit due to limited education and low disposable income, and the ready availability of counterfeits. Executives from New Zealand were the most optimistic, believing that piracy and complicity can be reduced by many anti-counterfeiting actions, including special packaging, reducing price, emphasizing product benefits/warranties, stressing the harmful effects of using fake products, offering site licenses, and listing of authorized sellers.     

Self-identity and internal environmental locus of control: Comparing their influences on green purchase intentions in high-context versus low-context cultures

This study empirically examines the combined effect of two crucial internal consumer predispositions, self-identity (SI) and internal environmental locus of control (INELOC), among consumers in a collectivistic culture and an individualistic culture. The study validated the extended theory of planned behaviour to predict consumers' green purchase intentions. Structural equation modelling was used to analyse primary data collected from 365 American and 408 Indian respondents. Analysis revealed differences between the two cultures. Green self-identity influenced attitude more than perceived behavioural control among American consumers, while the reverse was true for Indian consumers. Conversely, INELOC positively and significantly affected only Indian consumers’ perceived behavioural control, not that of American consumers.     

OPTIMAL INSURANCE DESIGN UNDER RANK‐DEPENDENT EXPECTED UTILITY

We consider an optimal insurance design problem for an individual whose preferences are dictated by the rank‐dependent expected utility (RDEU) theory with a concave utility function and an inverse‐S shaped probability distortion function. This type of RDEU is known to describe human behavior better than the classical expected utility. By applying the technique of quantile formulation, we solve the problem explicitly. We show that the optimal contract not only insures large losses above a deductible but also insures small losses fully. This is consistent, for instance, with the demand for warranties. Finally, we compare our results, analytically and numerically, both to those in the expected utility framework and to cases in which the distortion function is convex or concave.