In the upcoming holiday season, an estimated 850 to 950 million packages will be shipped. These packages must endure travel delays, misroutings, thefts in transit, as well as porch piratery after delivery. If consumers do not buy from major ecommerce companies, shipping insurance is either nonexistent or very expensive.
In 2022, thieves will steal 260 million packages worth $19.5 billion from the porches, doors, and mailrooms of U.S. customers.
Retail warranty provider Extend Now offers SMB etailers, and their customers, a choice between low-cost extended warranties on products and shipping protection during checkout.
Extend pays to buy a replacement product from the same retailer if the original is stolen. This protects both the retailer and creates additional revenue. Extend covers the cost of a replacement product at the same retailer in the event that the product is stolen.
Extend’s pricing formula allows retailers to earn extra revenue from the purchase of shipping and warranty coverage at checkout, even if customers never file a claim.
Rohan Sha, Extend’s co-founder and Chief Revenue Officer, said that its product protection program offers consumers and merchants an alternative to the cumbersome, legacy claims-filing system.
The biggest problem for retailers’ customer service teams is that 40 to 70 percent of their calls are about shipping problems. ‘Where’s my order?’ or ‘My package didn’t arrive.’ or ‘My product arrived damaged,'” he told The E-Commerce Times about typical complaint calls.
Merchants are burdened with support costs due to delivery problems. Most retailers will send a replacement package if a customer complains about a lost package. Shah noted that this puts the retailer into a negative transaction with their customers in hopes they will return and purchase again.
“These issues hit the merchants. He said that from the customer’s point of view, merchants caused anxiety. “We created a shipping protection plan to complement our warranty plans, which covers against lost, damaged, or stolen packages. This gives customers peace of mind.”
The Delivery Field is Levelled
Extend founders studied the reactions of customers to the problems often associated with warranties protections when formulating their 2019 business strategy. The study found that consumers tend to avoid buying warranty extensions unless the transaction is made easy.
Extend evaluated the need for protection of shipping last year, and added this program.
Rohan Shah
Co-founder Extend
Shah points out, that although large ecommerce platforms such BestBuy or Amazon easily integrate extended warranties at checkout for their customers, SMB retailers often lack the necessary infrastructure to administer this service independently.
Best Buy, for example, has developed all the necessary technology and infrastructure to offer its customers these programs. Most retailers can’t do that. Most retailers cannot do that.
BestBuy spends 52 percent of its net revenue on extended warranties. This is why they’re so pushy.
We walked around the store and found that none of the brands offer an extended warranty. There’s definitely a customer demand,” he noted.
The founders of Extend were presented with a substantial financial opportunity, but they had no access to it. This situation revealed a poor customer experience, and an issue with distribution for services of this type within the industry.
“That’s a pain-point that exists in the retail sector, which gives us the chance to really change people’s perception of that.” “That’s what made us come up with this idea,” Shah explained.
E-Commerce Pain Makers: How to Solve Them
Retailers were not allowed to access these offers unless they were among the top 1% of retailers selling through Amazon Costco Wayfair Walmart Best Buy. All of these retailers provide extended warranties on all products.
Extend set out to fix this disconnect.
Now, fast forward to today. The company is now fully digitized. The company is vertically integrated.
Shah believes that Extend is a Software-as-a-Service (SaaS). The company developed the original extended warranties service and has all the infrastructure, both from an insurance and underwriting perspective.
“We consider that to be a must-have in order to manage the experience of both customers and merchants from beginning to end,” explained he.
Extend was founded as an online business that focuses on Shopify Magento BigCommerce for e-commerce.
We are currently live in more than 7,000 brick and mortar locations in the United States of America and Canada. “We offer plans in different categories like furniture, electronics, jewelry, sports, fitness and auto parts,” said he.
Deliverance Guarantees That Work
Extend’s product insurance for customers increases conversion, customer satisfaction, and peace-of-mind at the point of purchase. Shah said that the insurance removes all the liabilities and products from the retailer’s books at the backend.
Extend’s chatbot can handle any claims from customers who have a problem with their product delivery. This is the same service that the company offers for its extended warranty. These customers are given new products by the company.
“We buy additional products back from the retailer and send them out to the customers, creating what we traditionally look at as a profit transaction tool. This turns the situation into an incentive to build customer loyalty and lifetime value,” said Shah.
This results in a product with a margin of 100% that goes straight to the bottom line for merchants. Extend assumes all risk and is responsible for fulfilling the performance obligations.
E-Commerce customers can now get affordable warranty add-ons
Extend’s plan of product protection is offered at no cost to retailers. Customers do not need a membership to benefit from what is essentially an assurance of delivery. There are no monthly or annual charges, as there would be with traditional SAS providers.
The cost of extended warranties offered by many big box retailers can be several hundred dollars per year for an additional 90-day to 1-year warranty. Usually, the merchant is responsible for setting up the back office and managing the costs.
Extend lets consumers pay as little a 5% of the original retail price. Costs can reach up to 20% or 15% depending on how long the warranty is.
Warranty Services Maximize E-Tail Margins
Extend’s plan of business is based on the retail margins. Shah gave this example:
Consumer purchases $100 worth of goods and extends the warranty. A portion of that — say 50% — is the retailer’s margin. This is $50 in pure margin revenue that the retailer captures. Most retailers typically operate at a margin between 20% and 30%, depending upon the product category.
Setting up and managing extended warrantys can be time-consuming for SMBs and expensive. Shah said that most insurance providers do not help with the set-up process. Many small retailers do not have the resources to offer extended warranties for e-commerce.
Shah said, “That’s what we do right out of the box.” Extend reserves a portion its extended warranty fee. This is the claims and underwriting part of the business. He explained that the company adds its margin to this.
Shipping Protection: Why it Works for Stores and Consumers
Extend receives a portion of every transaction from its partners when consumers elect to take part in the shipping insurance. The shared revenue is determined by the average order volume (AOV), which is the average amount spent on each transaction.
Shah gave this example: Let’s say the buyer has an AOV $100. Shipping protection can cost anywhere from $1.99 to as much as 2% of your cart total. The shipping protection is a choice made by the consumer at checkout.
“This is a low-cost fee structure for ecommerce shoppers. Shipping protection in-store is not important. “Shah observed that it is extremely relevant for online shopping.”
Effective Revenue Strategy
Retailers make money by selling extended warranties. Shah claims that almost half of the customers who buy extended warranties do so. Online purchases are different. Only around 15% of e-buyers choose to opt in. Online shoppers can buy in up to 70% of the time if they choose shipping protection.
Shah explained that over the past two-years, product protection has gone from an optional tool to one that is a necessity for retailers.
The shipping protection industry is growing as it provides ecommerce retailers with a powerful way to fight against delivery errors at the checkout.
