The duration of the service contract had the most visible influence on pricing. The longer the duration, the higher the price. In fact, some suppliers seemed to base their prices exclusively on this metric. If the costs of covering a year are calculated at 20 $US, then their three-year contracts were 60 $US, their four-year contracts 80 $US and their five-year contracts were 100 $US. For example, Sears and Kmart are still at the top of the scale when it comes to the ratio of product prices to protection prices. Sears Master Protection agreements also cover cosmetic defects. There is no deductible or cap on service fees. And the replacement is done if necessary with new comparable devices. Not all plans are the same. This indicates that, although the price of protection may be closely related to the price range into which a given product falls, it is also related to the average price of repairs and, indeed, to the likelihood that repairs will be necessary within a given period of time. There may therefore be both a floor and a ceiling that is included in the price calculations of service contracts. There is a sub-price at which no supplier can make money given the costs and likelihood of a claim.
And there is a cover where even the protection plans of the most expensive units are profitable in the long run. This is a simple method of linear pricing of service contracts, which also simplifies the coordination of recorded revenue and expenditure. But it doesn`t always work as well. For machines with moving parts and constant use, wear and tear is expected to lead to an increase in claims in the coming years. The cost of covering such a product, not $20 per year linear, can be $1 and $2, $20 $US for the third year, and $4 and 5 $US. The price of protection plans must reflect this situation. Service contracts for refrigerators sold for less than US$700 averaged 24%, while the price ratio for units sold for 1,600 $US or more was only 10%. In the middle, the protection price of units with a list price between 700 and 1600 dollars was on average 14%, also below average. And it`s not because we counted more units in one group than in another.
As shown in Figure 3, the three groups were designed to be almost identical. In other words, buyers could first choose the refrigerator they wanted to buy, and then choose between several service contract options that differ in terms of price and duration as well as coverage. This was the only case where a particular retailer had a selection of consumers, at least as far as service providers were concerned. Normally, at some point, each director has a monopoly on a particular retailer and they compete to replace each other. In Figure 5, we segmented the 320 service contracts according to their duration of coverage. No one-year contract was found, likely because merchants and administrators are happy to give this window to manufacturers to cover their product warranties. And since the possibilities of handling sweeteners are limited (payment for spoiled food, payment for cosmetic damages, etc.), no one has sold policies that only double with the guarantees of the product. The average price of the refrigerator service contracts we found was just over 16% of the product price, but as we`ll show, there are many ways to cut and dice a single metric. Without looking at the properties of the refrigerators themselves (ice machine or not, door configuration, color, etc.), we found several things true. First, the brand did not play as important a role as the price of the unit or the duration of the service contract. We will propose that there is no significant difference between the quality, reliability or cost of trademark rights, or at least that they have not been expressed in the price of service contracts.
Some retailers have kept some fairly wide price ranges. For example, at Abt Electronics (which uses SquareTrade for all non-local sales), the price of all four-year service contracts for refrigerator sales for less than US$1,000 was US$80 $US and $US 100 for five-year plans…