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Are 3 Year Warranties All They're Cracked Up To Be?

Jon Bach (President)

Are 3 Year Warranties All They're Cracked Up To Be?

Posted on December 7, 2008 by Jon Bach

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We recently ran a special on all our systems, offering a free upgrade to a three year warranty.  To be honest, in the current economy, I did not expect it to be terribly successful -- I thought that (at this time) price was the biggest factor, and that monetary discounts might yield better results.  I was wrong!  The free warranty upgrades were wildly popular, and we showed a 300% boost in sales during that time.  Why do you think that is?  I'd love to hear your thoughts in the comments section below!

One of the first things that we did following the success of that special, was to take a careful look at our industry, to see what other companies were doing.  Check out the following, vastly simplified information (let me know if you see anything not accurate!):

      Default Warranty
Company Return Period Restocking Fees Parts Labor Shipping Tech Support
Puget Systems 30 days 15% 1 year lifetime 30 days lifetime
WidowPC 30 days 15% 1 year 1 year 30 days lifetime
Alienware 30 days 15% 1 year 1 year 1 year 1 year
Maingear 30 days 20% 9-14 months 9-14 months 30 days lifetime
VoodooPC 30 days 10% 1 year 1 year none 1 year
Vigor Gaming 30 days none 3 years lifetime none 3 years
GamePC 30 days 15% 1 year 1 year none lifetime
PC's for Everyone 20 days unknown 3 years lifetime 3 years 3 years
Cyberpower 30 days 15% 3 years 3 years 3 years lifetime
Apple 14 days 10% 1 year 1 year 1 year 90 days
Velocity Micro 30 days 15% 1 year 1 year 90 days 1 year
AVADirect 30 days 15% 1-3 years lifetime 5 days lifetime
Digital Storm 30 days Market value 3 years 3 years 30 days lifetime


What you'll notice is that Puget Systems' policies are on par or better than industry average, except for our parts warranty. With a few exceptions, the only companies offering parts warranty as "bad" as 1 year are the extremely large companies -- not good models of quality service! This has us thinking carefully about permanently increasing our parts warranty to three years on all systems. 

Before you say "of course, give it to us!", keep in mind that funds have to come from somewhere.  It is the role of Puget Systems to take the profits we earn from our system sales, and decide how to best invest those funds back into our customers.  We don't spend a lot on marketing, and we're not just taking that money home!  We feel firmly that our best long term strategy is to keep enough profits in the bank to be safe from market fluctuations, but that everything else goes right back into the customer.  I am making that very clear because it means that if we increase our warranty to three years, there is a cost associated with that, and that means that we don't have as much to invest elsewhere (additional technicians, better testing tools, etc).  My point:  there's no free lunch, so consider that before giving your input.

My Arguments Against 3 Year warranties

One argument I can make against three year warranties is that they are not all they're cracked up to be.  What will your computer look like in three years?  More than likely, any failed part will be able to be replaced with a modern equivalent at 1/10th the cost.  If you buy a NVIDIA GTX280 video card today for $450, it is very likely that if it fails in three years, there will be an $80 video card that will not only put it to shame, but will do with with less heat and less power draw.  Moore's Law at its best!

If the cost of replacement is so low, then what's the big deal?  Why not have Puget Systems pick it up, and reap the benefits of sales today?  The problem is that it isn't always so simple.  After three years, it is often the case that the part in need of replacement is no longer available.  What happens if your CPU is no longer available, and to replace it you are forced to upgrade your motherboard, memory and video card?  That's exactly what people who bought AMD socket 939 systems are experiencing today.  To me, this is a matter of setting proper expectations.  If Puget Systems puts 3 year warranties on all systems, we'll have the moral obligation to make costly accommodations to facilitate these problems.

My Arguments for 3 Year Warranties

The arguments for three year warranties are much simpler -- it makes Puget Systems more attractive.  It is a simple concept, and no one will say "no" to a longer warranty.  The sheer length of this blog post is a good indication that the arguments against longer warranties is complex, and I just don't think many people take the time to think it through.  


So what do you think?  Are 3 year warranties actually more costly to the customer?  If they are, do you think Puget Systems should take the route of educating our customers on the issue, or is the issue too complex and controversial to take on?  What would you like to see, if you are buying a computer?


Tags: warranty, service, support


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Alex

I think three year warranties are a scam. Most educated people know that with computer hardware if a part is going to fail it will most likely happen during the first 12 months. Warranties are in place to make the retailer money, why do you think Best Buy and Circuit City push them so hard?

Posted on 2008-12-08 22:11:19
Benjamin

I think either way if someone buys a three-year warranty or not, the components in the computer will most likely break at the beginning of the fourth year. It seems to happen every time for me. But if the additional 2-year extension is like $149 than its worth it, but if its like $300 its not really worth it to the buyer.

Posted on 2008-12-08 22:53:44

Thanks for the input guys. But what if you're not specifically paying for the 3 year warranty? I'm talking about increasing the Puget Systems warranty to 3 years, without an extra charge to the customer (but be sure to read my "no free lunch" paragraph).

Posted on 2008-12-10 02:49:29
chevysales

jon, being a current customer of yours but having bought from falcon northwest and others why did you leave their excellent warranty out?
1 day shipping....
yes you pay a little more for it but when specing out a $4,000 computer early on in a chip cycle it isn't a big deal money wise...

i just compared what i bought from you and what they offered and theres only a $210 difference part of which is made up in the power supply offered. that my friend is less than 1 overnight shipping trip.

you may want to rethink your warranty position. for many small parts most of us will just grab them from newegg and be done with it but for problems that go deeper sometimes a trip to the shop is in order... too bad for me it's across the darn country for both of you.

regards,
chevysales

Posted on 2008-12-11 04:37:40
Keith

I think that the beefed up warranty would most likely increase sales. And finally, peace of mind and reliability of the product should not be underestimated, especially in the current economy. To me, those two components go hand in hand.

Posted on 2008-12-15 05:06:56
Martin Murphy

You deal with pretty high end clientel. I believe they would much rather get a discount on new materials than replaced with an out of date one.

Plus you have the issue of holding on to excess inventory (estimated failure rate * number of units sold)

Posted on 2008-12-16 02:38:35
Loonphotog

A better idea might be a simple compromise and have a free 2 year warranty. This would place you in the middle of the pack and still be a meaningful warranty!
I know as the others mention, the parts either die real quick or seem to last forever. In the last 15 years I have had 3 home computers, all are still running in varius other family member's homes! Not one dead hard drive or PSU yet. Granted none of us are heavy duty gamers.
I am still playing with system layouts to buy my next computer here this month. A free 2 or 3 year parts warranty gives peace of mind, even if it is never needed!

Posted on 2009-01-05 02:05:09
Phil Hanson

I dunno if I get a new PCC in the next month could I get a free upgrade to 3 years? :)

Posted on 2009-01-05 02:56:18
Loonphotog

I know that a 2 or 3 year Free parts warranty would convince me to order from you sooner rather then later!

Posted on 2009-01-06 01:49:29
ransom

I like the 2 year idea. My mobo failed at just over 2 years so you would think I would want a 3 -- but the changes in components are a big deal. I had an AMD 939 chip (now it is sitting in my closet). Getting a discount on upgrade parts and support with dealing with the manufacturers -- since their warranties will vary -- would be more of a customer service boost to me.
And sorry to be dense but is the shipping thing how many days you will pay for shipping when we need reparis etc? Increase that to 90 days or something--it is much lower than eating the cost on a new mobo or some such.
The labor and tech support are the key ones anyway.

Posted on 2009-01-08 05:05:06
JohnH

I don't see much value in a three year warranty for desktops. A well-built system typically lasts for a good while. If some part does go out, it's usually not difficult to replace it yourself, and you can upgrade with a more powerful and recent part at the same time.

I'm more concerned that the original system is a well-built, non-lemon that works properly (especially after an expensive lesson in buying a poorly-built lemon from VoodooPC :( ); and that if the system should arrive with any problems from shipping, or bad parts, or whatever, those get fixed or, if they're not, I can get an appropriate refund.

For expensive laptops, I do like to get a 3 year warranty (plus some sort of accidental protection) since: (a) it's much harder to fix them yourself; (b) they're much more subject to damage, not that I ever spill full coffee cups over my laptop keyboards, or anything like that; well almost never.

Posted on 2009-01-08 07:37:47
Keith

How about you give people the option of either a three year warranty or a flat discount?

Posted on 2009-01-12 04:04:46

Thanks for all the comments everyone!

Keith, what you're suggesting is what we're doing now. Charging people for a 3 year warranty and discounting for no 3 year warranty is really the same thing, right?

After much though, research, and listening to our customers, we've decided for now that investing in our products and service is a bigger priority than offering a three year warranty as default. So if your video card fails in 2.5 years...spend the $50 to get a new one that's 2x faster :)

I continue to welcome your thoughts and comments on this. This is a topic that's never really closed, as we're always interested in hearing what you want!

Posted on 2009-01-12 05:38:36
Kevin

First I would like to state the obvious a 300% increase in sales should tell you what your customers want. That being said there are a few things that a smart shopper is going to be looking for when making a major purpose like a new computer.
Quality- are good quality components used in the construction
Price- is the price competitive
Warranty- does the warranty adequately protect me
Length of time the company has been in business- a 3 year warranty from a company thats only been in business for 6 months doesn't carry much weight.
References- what do past customers have to say about the company

The warranty on a new computer especially a high end PC is a major consideration. Most customers will use that new computer for at least 3 years, a large percentage of the computers still in use today are P4’s. As a customer I have to consider do I build the system myself or do I buy a system built be a company such as Puget. When a high end system builder only offers a one year warranty and the component manufactures offer warranties on their high end products well in excess of one year, I have to wonder why the system builder lacks confidence in their build. I can understand a one year warranty on mass produced low end- low priced systems, but when I buy a high end custom system at a premium price I expect the warranty to reflect the extra investment I have made.
One other thought on warranties and this is an absolute deal breaker for me I don’t know if you do this at Puget. If the case has one of those “Warranty Void if Removed” stickers on the case so I can not open the case for inspection I will not buy the system. You would not buy a car if you couldn’t check under the hood. There are system builders out there that hide poor workmanship and low quality components behind these warranty stickers.
So for me a one year warranty on a high end system is no where near adequate. A three year warranty at no extra cost should be included

Posted on 2009-01-24 21:32:28
Bob Wynn

Having a good warranty can be a boon for the consumer(and Jon knows I speak from experience about making use of their warranty) however what may ultimately be the best deal for the consumer is Puget's continued investment in the company. It seems to me that the "ideal" warranty is a product that doesn't need a warranty. Investing in better research, test equipment, and expertise to reduce the chance of system/part failure is cheaper and a lot less hassel for both the consumer and builder. Of course some type of warranty is necessary because on occassion things fail no matter how much investment is made. However, I give much more creedence to a low failure rate than to an extended warranty. Spend the money in producing the best possible product and we both won't have to worry about the type of warranty offered.

Posted on 2009-02-19 01:27:27

Every computer I've ever owned has had something go wrong with it in the first 3 years - either a hard drive failed, a power supply failed, or ???

I never buy extended warranties, but I'd be more apt to buy from a company that offered one if prices were comparable.

Posted on 2009-04-14 14:51:56

In evaluating the response to the free 3-year warranty, remember people’s disproportionate, irrational response to “free.” It’s well documented, it happens. Of course, if you offered a “free 3-year warranty” on everything, all the time, it wouldn’t really be something “free” anymore, and I suspect response would change accordingly.

Have you considered offering a “free, 3-year warranty” on systems where the critical components (power supply, motherboard, memory, video card, hard drives, cooling) are chosen from your most reliable configurations... if you can, in fact, be particularly confident of a very low 3-year field failure rate in those systems?

Because that is, really, what people want. We don’t want to know you’ll fix it for free if it fails nearly as much as we want it not to fail until after we’re ready to upgrade anyway. We want it to still be working perfectly when it’s obsolete for our needs and we hand it down to our 10-year-old niece. Of course, no one can guarantee that, but a longer warranty makes us feel that you believe it’s more likely.

As a business proposition, warranties are insurance, and insurance is never a good deal if you can afford to cover the potential loss yourself. If paying 25% additional to get free replacement parts for the second and third years were a good bet, the computer would necessarily be a horrendous piece of unreliable junk; but because of the frustration, inconvenience and potential data and business loss, paying extra to achieve a significant drop in field failure rate on an already good build could be a worthwhile proposition. It’s not the “insurance” that’s attractive: it’s the vendor’s willingness to bet that the system will not fail.

A quick look at a sample page — the Obsidian, with no modifications to the initial configuration — shows a 29% cost to cover parts for the second and third years. Looked at from the perspective I just described, you’re not willing to bet on much there... considering that most failures surely cost considerably less than the price of the entire machine to repair, one would roughly have to expect the machine was as likely as not to break down within three years for this to make economic sense for the purchaser!

And you advertise the Obsidian as being “based around a core set of components validated for highest reliability.”

Posted on 2009-05-07 16:38:29
GRBerry

Take a look also from the perspective of the customer. What message does a long warranty send? It sends a message of confidence in the quality of the item covered.

You offer lifetime warranty on your labor and lifetime technical support. Those are under your control, and you are showing lots and lots of confidence in them.

You offer 30 days warranty on shipping. You do what you can with custom packaging, but fundamentally shipping is outside your control. And shipping damage is unlikely to become visible downstream.

Where do your parts fit in the this scale? Obviously, you aren't making them yourselves, so not fully under your control. But you do select for quality. So not totally out of your control. Somewhere in between. What message do you want to send to your potential customers here? What message can you afford to send?

And does it have to be the same message for every system? If you set different policies for liquid versus air cooled, SLI video versus non-SLI, or whatever other dimensions matter, and made those differences visible, customers would get the message difference as a caution about the relative reliability of the different systems. (E.g., if you offered two years on single video card systems, but dual card systems only got one year for the pair with a warranty that at least one would be working out to two years...) And it might help us buy better systems from you, thus improving the industry.

Posted on 2009-08-21 03:39:55
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