How Offering Product Protection Can Improve Your Path to Ecommerce Profitability

“Retailers must now recognize a few truths: all growth is not the same; unprofitable growth destroys value; and healthy, sustainable growth should be the goal.”

— McKinsey analysts on ecommerce profitability

Ecommerce is becoming more competitive by the day, meaning customer acquisition costs are surging, and so are customer expectations. As acquisition costs rise, merchants’ margins go down, and today they’re being squeezed tight. What many ecommerce operators have learned over the past decade is that profitability is more elusive than it looks.

The “growth-at-any-cost” playbook isn’t an efficient or sustainable path to profitability. In fact, focusing on acquisition at the expense of retention could actually hurt your bottom line.

Merchants today can find sustainable growth through investment in the purchase and post-purchase experience to build value and loyalty across the end-to-end customer journey.

Let’s look at how product protection can help you do just that.

How Product Protection Adds Value for Merchants (and Their Customers)

Retailers are being pushed every day to generate more value and reduce their operating costs.

One of Retail Dive’s 10 retail trends to watch this year is dedicated to retailers diversifying revenue via services: “... [A]s companies move to diversify operations and cultivate diverse revenue streams … it also means not only offering products, but services.”

Some of these services, like product protection, can drive revenue without additional overhead. And it delivers a service to customers without relatively little effort from merchants.

Gabe Munz, CTO of hair tools brand TYME, said this about product protection:

“It makes complete sense to partner with Extend. [Product protection is] such a good value-add for our customers and makes financial sense for us. We're able to cover our customers' tools while bringing in revenue that goes straight to our bottom line.”

Here’s some of the specific ways that product protection can enhance your brand and your bottom line.

Drive profits, purchase conversion, and AOV

Consumer confidence to purchase goes up when they see someone that stands behind the product they are considering purchasing. In fact, Assurant found that extended warranties can increase a consumer’s intent to buy by about 25%.

That’s one reason product protection can help increase overall purchase conversion, and Extend merchants have seen this play out for themselves. When BlendJet started offering Extend product protection plans, their overall product purchase conversion rates increased by 11%.

BlendJet’s founder and CEO Ryan Pamplin said, "When running a successful direct-to-consumer brand you hear from a million vendors who promise you the world, but find that very few can actually move the needle in a meaningful way. Extend is one of the rare exceptions.

“After we turned on Extend, which took minutes, it instantly increased our average order value and boosted our conversion rate by double digits. Even for customers that don’t buy protection plans we’ve found that Extend works like a trust badge that instills consumer confidence and drives more sales."

Help customers protect their products

When purchasing high-ticket items, customers want to know they’ll be taken care of if something goes wrong. Easy-to-use, accessible product protection plans help give customers the peace of mind that you’ll stand by your product if they have an issue.

Plus, the benefits are twofold, as Vipul Lakhi, CEO and Founder of My Trio Rings, relays:

“Our couples are wearing our rings every day, and many are going to get comments on their rings. It’s in our best interest to make them look and feel perfect so our customers tell their friends about us and what a great experience they had.”

Resolve issues quickly and easily

Delivering excellent customer service can get pricey, especially if you sell large or complex products that often need repairs or replacements.

Hilton Blieden, CFO and Head of Operations at NewAir, talked about how of a burden Extend Product Protection removed from his customer service team:

"Extend handles everything once the customer makes the claim. They're not calling our customer service to handle it."

Hilton continued, "Before, customers would call our customer service, and we would have to get on the phone with the insurance company and get the whole thing resolved."

Customers benefit, too. They can chat with a virtual claims assistant 24/7 for a fast response and to replace their products quickly — turning an unhappy customer into a delighted one, building stronger ties between customers and retailers.

Build loyalty and keep customers using your products

One way product protection builds loyalty is through increasing post-purchase touchpoints to drive continued engagement and customer traffic back to your store. In research conducted for Extend, 56% of survey respondents who offered product protection in their retail business said one of their top motivations was to increase post-purchase customer engagement.

Additionally, when Extend fulfills a claim, they drive customers back to the original merchant for a replacement. That counts as a net new sale for the merchant — without the customer acquisition cost.

Why Use Extend for Product Protection?

Building an in-house product protection plan is a huge undertaking that requires expertise in the service contract industry’s regulatory compliance, licensing, and compliant terms and conditions.

And frankly, as legacy product protection programs lack the digital enablement of more modern solutions, they aren’t much better. In fact, survey results from BainCapital Ventures showed that, of merchants who don’t currently offer a product protection program, 48% believe it’s just too complex to manage.

Extend solves for this. We make it easy by offering tailored protection plans for brands in virtually every industry.

The Extend Difference

We offer product protection with no hidden fees or deductibles, and your customers’ claims get processed quickly. In fact, most claims are processed within 90 seconds. Extend is able to offer a better experience for both merchants and customers because it’s both digitally native and vertically integrated.

One of our big differentiators, of course, is our technology. Extend’s integration into your tech stack makes managing the product protection offering much simpler for merchants than with legacy offerings.

But what does “vertically integrated” mean in the context of product protection? It’s really not that different than the DNVB brands you’re used to, like Warby Parker and Harry’s. As this DC360 article explains, “Vertically integrated brands control the product from the factory floor to the consumer’s hand.”

Tailored programs

We own the entire end-to-end experience, and that’s possible in part because we are our own obligor. That gives us the key to the “factory floor,” enabling us to tailor our product — product protection plans — to best meet merchant and consumer needs.

Consultative service

Then we consult closely with merchants to establish the best plan(s) for their business, integrate the solution into their systems, set up offer placements across merchants’ preferred surfaces (e.g., product description page, checkout modal, post-purchase, etc.), and meet regularly to assess performance and optimize for improvement.

Excellent customer experience

We also prioritize a high quality end-customer experience, with easy-to-understand terms and conditions without the gotchas of claims avoidance tactics, and a sleek digital claims submission and adjudication. Finally, we send customers with approved claims back to the original merchant’s store for replacements.