Product Protection

Should You DIY or Choose a Third-Party Product Protection Solution?

Aaron Sullivan
June 30, 2022

Some things in life are simply better when you make them yourself. Things like home decor, a vision board, guacamole — they’re all dependent on your preferences and personality, which is why we often create them instead of buying them.

But what about something that’s dependent on the satisfaction of others, like your customers? Specifically, we’re talking about offering product protection and whether it’s better to go the in-house route or bring in a third-party provider.

You may already know that product protection plans can help motivate a purchase by about 25%, but that’s typically only for programs that are optimized to drive maximum results. So if you build your protection program yourself, knowing what and when to optimize can be a challenge…this is just one factor you should consider when determining how to introduce product protection to your customers.

We’ve pulled together a list of other important aspects to think about when exploring your product protection options, ranging from expertise to customer experience. 

Factors to consider when assessing in-house vs. third-party product protection

1. Expertise

In-house:

If you choose to take a DIY approach to creating an in-house product protection program, you’ll be forced to rely on your own research and expertise. That means determining what coverage details best fit your products and customer needs, which adds to the amount of time necessary to go live.

Third-party:

A trusted product protection provider will immediately expand your pool of knowledge on service contracts and an effective implementation process. You’ll have access to a team of experts who know the ins and outs of product protection and can work with whatever front- and back-end processes you have in place (Shopify, NetSuite, BigCommerce, etc.).

2. Time and technology resources

In-house:

Building an in-house protection plan program will require a lot on your existing team: engineering, legal, sales, marketing, etc. It’s a safe bet to assume it will take about a year to create your program, which means you’ll miss out on potential profit during that time.

Third-party:

An external solution already has specific teams in place to handle the heavy lifting, no matter what ecommerce software your business runs on. More importantly, they’re experts and have been tested with experience, which makes the time to implement much faster and smoother.

3. Reporting and optimization

In-house:

Once your program is up and running, you’ll need accurate data to be able to maximize revenue and optimize for customer satisfaction. Going in-house means you’ll need dedicated resources to figure out what matters most, establish a reporting baseline, and use that data to improve performance. They’ll also need to closely monitor program performance on a regular basis and devote much of their time to analysis. Certain states have regular reporting requirements, as well (more on compliance in the next section).

Third-party:

Third-party protection plan providers like Extend have experts at your disposal to help with reporting and optimization opportunities. Because of this, you’ll start out the gate with general expectations of baseline performance (based on your industry and product offering), saving you time and stress. They’ll also meet with you on a regular basis to review performance and talk through opportunities for improvement. 

4. Regulatory Compliance

In-house:

Obtaining and maintaining compliance is one of the most arduous — yet important — aspects of offering product protection, and if you choose to run an in-house program, this important work will rest on your shoulders.

To give you a better idea of what’s required to sell service contracts, you may need to take each of the following steps:

  • Become a licensed service contract provider in certain states in order to comply with applicable regulation. During this process, depending on the state, you may need to disclose information about the company and personal details about owners and directors. You may also need to pass extensive background checks and submit fingerprints!
  • Prove the solvency of your company and/or partner with an insurance carrier to obtain a Contractual Liability Insurance Policy backing your service contracts.
  • Apply for service contract administrator licenses, register with Secretary of State offices in certain states and submit to regular reporting requirements.
  • Apply for service contract seller licenses.
  • Write terms and conditions to meet regulatory requirements and submit these for approval by state regulators.
  • Renew any applicable licenses on a regular basis to remain in good standing.

Because the service contract industry is regulated on a state-by-state basis, it’s important to comply with all the licensing and regulatory requirements to avoid penalties, license revocation or other legal action.  

This can be a cumbersome process that may take months to complete. It also generally requires significant internal resources and expertise in addition to a large ongoing financial investment. 

Third-party:

A third-party protection plan provider has a team in place to help you handle compliance requirements, no matter where your products are sold. For example, Extend has numerous industry experts that can help you understand product protection compliance and tackle regulatory requirements on a state-by-state basis. This speeds up your implementation process and gives you peace of mind.

5. Revenue recognition and financial risk

In-house: 

Going the DIY route with product protection means you assume all responsibility for dedicating resources to managing financial risk and setting up the proper accounting processes to support service contract sales. You’ll need to set up a reserve and amortize the profits over the duration of the protection plan terms, rather than recognizing the revenue made from each sale upfront as profit.

Third-party:

Similar to other aspects of having a third-party product protection solution, your provider will assist with revenue recognition and financial risk. Extend, for example, is a licensed service contract provider, administrator, and it serves as its own service contract obligor in North America. A full-service protection plan provider may serve as its own underwriter and empower momentous growth through flexible, customized plans.

This kind of approach to product protection is what has helped BlendJet generate $500 million in revenue through its protection plan offering. 

6. Pricing & offer conditions

In-house:

Starting from scratch means you will likely not have any idea of where to start with protection plan pricing. You can look at what your competition offers, but that won’t give you any insight into how much money they make from each protection plan sale or how claims costs impact profitability. This will lead to months of wasted time trying to analyze and optimize pricing to find the sweet spot that both motivates attachment and maximizes revenue.

Third-party:

The expertise of your third-party provider will come in handy with initial pricing, which saves time and prevents you from losing money with inappropriately priced plans. They’ll also routinely review program performance and offer pricing suggestions to make sure your store is making as much as possible through plan sales. 

7. Customer service

In-house:

Without a digitally native claims process in place, your customer support team will be processing claims manually, which will add to the claims processing time (that could be days, weeks, or months instead of mere minutes). 

Third-party:

The process for a third-party provider like Extend is incredibly simple and often very quick. Extend processes 98.5% of claims in 90 seconds or less, thanks to industry-leading technology and the fact that Extend is its own licensed administrator (after the 2019 acquisition of the warranty services division of AON's $43B insurance company).

8. Customer experience

In-house:

You must also consider how customers will file individual claims — via phone, email, chat, mail-in, etc. — and how your customer service team will be able to handle the intake process. To be effective, your program must be built around the idea that an optimal customer experience is paramount to everything else. Will your claim filing process satisfy customers and ensure a hassle-free resolution?

Third-party:

For third-party providers like Extend, customer satisfaction is a guiding principle and is used to determine business decisions. It’s why we have a virtual claims assistant named Kaley, who handles intake and can process claims efficiently — without a customer having to dig up an old receipt. 

Choose the best protection plan program for your business

Whether you go with an in-house or third-party protection plan solution is totally dependent on your business setup, resources, and your own ambition. This article only touches on the advantages of going with a third-party provider like Extend…there are many more benefits, including customizable offer content, comarketing resources, and industry-leading support.

To get a better idea of how Extend helps merchants succeed, check out this merchant story with the sustainable jewelry brand Brilliant Earth.
Aaron Sullivan
Aaron Sullivan is senior content marketing manager at Extend. He specializes in writing about e-commerce, finance, entertainment, and beer.

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