Sears Maintenance Agreements - Con

WW, a former Sears employee, writes:
Next time you're in Sears or another store buying appliances or electronics, watch out when you hear: "This product is also eligible for our 3 year Maintenance Agreement program which covers repairs and replacements for any damages due to wear and tear, and includes an annual preventive maintenance check all of which will save you the expensive cost of repairs and give you peace of mind....."

You will often hear this during a sales presentation from an associate at Sears Brand Central and other stores that sell appliances and electronics.

Maintenance Agreements and other types of extended warranties are big business these days. Companies that sell them are making huge profits from them, and because of that, they are pushing an aggressive marketing program to promote them through their salespeople. Obviously the revenue generated from an extended warranty far exceeds the cost of them, and that's why they are continually offered and pushed.

Since I used to work for Sears selling MA's myself, I can give you some insider information as well about how we were taught to push the MA's. The bottom line:

What a Maintenance Agreement is

A Maintenance Agreement is simply Sears' version of an extended warranty, except that Sears itself will never say that it is anything like an extended warranty because 1) they want to distance themselves from the media's criticism of extended warranties, 2) they want to distance themselves from the negative public opinion on extended warranties, and 3) they want people to see it as something special that only Sears offers. So they call it a Maintenance Agreement. Other stores that sell electronics and appliances like Circuit City, Radio Shack and Best Buy all have their own version of extended warranties too along with their own "pet names" for them as well.

According to Sears, the MA is a 3 year service agreement which covers parts and labor for repairs and replacements due to normal wear and tear (not abuse), unlimited service calls, unlimited instructional calls, and includes an annual preventive maintenance check. In my opinion, this is not much different from an extended warranty, although Sears wants people to think that it is so that it will look like something special and they can sell more of them.

Is the MA really any different from an extended warranty?

Let's analyze Sears' claim that the MA is "very different from an extended warranty." The sales pitch that Sears uses is that the MA is very different from an extended warranty because it includes an annual maintenance check and unlimited service calls.

Ok, but so what? During the first 3 years of the appliance, its still basically new, so very little goes wrong. So what then would be the benefit of having access to service calls and maintenance checks?

An annual maintenance check on a brand new product isn't usually going to reveal any problems that need to be dealt with. It would be much better spent on a product that is 10 or 15 years old. But of course, if you kept renewing the MA on a product for 10 or 15 years, you would have spent more money than if you had bought two of the same products brand new! Anyone can come and do a maintenance check on a brand new product and tell you that it's running smoothly.

The reason that the MA is in fact very much like an extended warranty is that both are offered for the same reason, as well as profitable for the same reason. They both cover the period of the product life cycle when the least failures occur. The period covered by the MA generally runs till near the end of the product's useful life cycle when failures begin to occur more frequently, and at that point Sears will usually not offer you another renewal on the MA again. So much for being there when you need them most.

Both the MA and a generic extended warranty do basically the same thing, which is provide insurance for your product. So even if, say, your VCR broke under a generic extended warranty, it would be either repaired or replaced, just as it would under an MA. Therefore, although Sears claims that its MA is "very different" from an extended warranty, they offer no substantial evidence to warrant that claim. All the MA offers beyond a basic extended warranty are a few additional services that you don't really need for the period it covers.

Sears' claims vs. unbiased studies

Sears claims that 70 percent of the people who buy MA's are so satisfied that they end up renewing it. In fact, from my research I find almost the exact opposite to be true. From all the dozens of message board and newsgroups postings I've read on the internet, it seems that about 70 percent of those who have bought MA's were actually dissatisfied with them because 1) they never had to use it and thought it was a waste or 2) they didn't like the service because they often had to wait 3 or 4 weeks to get something repaired because the service tech kept having to order certain parts and reschedule visits.

On the other hand, I've found that there are exceptions. Those who said they were satisfied with their MA tended to have them on products such as lawnmowers or snowblowers, whereas those who've had them on appliances tended to say that it wasn't worth it because they never needed to use it.

In almost every unbiased study you can find, ABC's 20/20, Consumer Reports, etc., they've concluded that extended warranties are not worth the money.

How Sears pushes us to sell the MA

Now since I worked for Sears in appliances, the examples I'm going to use are from Sears and their MA's. At Sears, they are very religious about their MA's almost to the brink of being cultish about them.

Once a week, we had an hourly MA meeting that was like a pep rally to motivate you to sell more MA's. If you missed an MA meeting, you would be written up on that, and they would threaten to fire you if you missed it again.

At the meeting, hand outs are passed out which show everyones MA percentages for the month and year out in the open for all to see. (I guess Sears doesn't care about people's privacy). Those with high MA standards are praised while those with lower MA standards feel embarrassed and ashamed because they are considered to be poor performers.

Each division in Brand Central and Hardware has a different MA standard to maintain which is calculated percentage-wise by taking MA sales dollars divided by product sales dollars. For example, the MA standard in my division is 5.75 percent. So if I sell a $500 range with a $99.99 MA on it, then $99.99 divided by $500 equals a 20 percent MA. Now of course if I sell another $500 range without an MA, then my MA percentage would go down to 10 percent, because $99.99 divided by $1000 (two $500 ranges) is about 10 percent. So I have to maintain an MA percent of 5.75 or else I'm doing something wrong.

The funny thing is, sometimes if I start the day with a 20 percent MA on my first sale, then I'm afraid to sell anything else the rest of the day because my MA percentage could plummet if I do.

The prices for the 3 year MA as of now are as follows: $29.99 for a microwave, $34.99 for an upright vacuum, $59.99 for a canister vacuum, $99.99 for a dishwasher or range, etc. In addition, we are given incentive to sell MA's because our commission range for MA's are the highest, ranging between 10 and 15 percent. So if I sell a $99.99 MA, then I would make between $10 and $15 dollars from it.

If someone's MA percentage is continually low, then they would be subject to termination. So even if someone's MA percentage is low because their customers didn't want the MA, management would take it out on the associate and judge him/her to be a poor performer and might get rid of him/her.

Pressure on sales associates leads to pressure on customers

The pressure of maintaining this standard puts pressure on us to put pressure on the customer to buy the MA even if they don't want it.

This is why when you go to Sears and other stores, their salespeople will be so pushy and insistent on you buying their MA's. So when the salesperson tells you that you "need the MA" what they really mean is that they need to sell it to you.

Selling MA's by instilling fear and worry in the customer

Sales associates instill fear by describing the worst possible scenario -- one in which a sudden appliance failure causes them huge inconveniences and expensive repair costs.

What I hate are situations where I meet a customer, and we are both getting along great, and then I sell him/her the right product which makes both of us happy, and then I think "Oh no, now's the point where I also have to try to scam this nice fellow into spending more money to get the MA!" How would that make you feel?

Sears considers MA objectors to be "Uneducated"

According to Sears, customer objection to the MA must be overcome because the objector is considered "uneducated" about the MA. (More like "unbrainwashed" about the MA to me!) They actually assume that "educating" you will convince you that the MA is worth your money, when in fact the reverse is true.

In fact, the more people become educated about what MA's really are, the less they want them.

The steps we are taught to take to overcome objections to the MA

Now let me share with you the steps we are taught to try to overcome an objection to an MA. The steps are as follows:

  1. Clarify the objection - meaning that you restate the objection in your own words to show that you understand the customer.
  2. Cushion the objection - meaning that you soften the power of the objection.
  3. Answer the objection - meaning that you explain it away by solving it.
  4. Seek Agreement - meaning that you try to get the customer to agree with your answer to their objection.

So for example, say that the customer's objection is "$99 for an MA? Now that's kind of expensive!" So I would clarify the objection by saying "So you're doubtful as to the value of the MA right?" and then cushioning it by saying "Well I understand, no one should have to pay an extra cost for something without knowing why." and answering it with "However, the high cost of repairs these days can run into the hundreds of dollars and become a huge inconvenience. The Sears Maintenance Agreement would spare you from all that, and give you peace of mind as well. Furthermore, our annual preventive maintenance check will keep your product running smoothly and help extend the life of it." and finally I would seek agreement by saying "Now don't you agree Mr. and Mrs. Jones that the value of saving time, money and inconvenience as well as extending the life of your product are well worth the small price of the Maintenance Agreement?"

Now, if I get another objection after that, then I am to start the 4 step process all over again and to take up to 3 "No's" before giving up! Of course, most associates know better than to have to take 3 "No's" but that is Sears' official policy on overcoming objections to MA's.

I was commanded to "brainwash" the customer!

Even my Brand Central Manager in not so many words commanded me to "brainwash" my customers into needing the MA! One time I wasn't getting any $30 MA's on any $100 to $150 microwaves, and when the manager came up to me about that I said, "Yeah well I'm trying to sell the MA's on these microwaves, but the customers keep telling me that they just dont think that it's worth it to buy a $30 MA on something they can easily replace if broken."

This got him mad and he replied, "No you can't think like that! It's your job to convince them to see the value of getting the MA. You're doing them a great disservice to them by not giving them the MA. Who do you think they're going to blame when that microwave breaks in a few weeks?"

Can you believe that? What he was saying in not so many words is that "I don't care what the customer wants or thinks they want! What's important is what Sears wants them to buy and what Sears wants them to think!"

Conflict of interest between salesperson and customer

The MA commission system also creates a conflict of interest between the salesperson and the customer. Since our commission rate on MAs are between 10 and 15 percent, it is in our best financial interest to sell the customer the MA.

However, if the customer feels that the MA is not in their best interest to have based on their judgment, then a conflict of interest takes place. This results in tension and indirect competition between the salesperson and the customer. Thats why customers commonly feel pressured into buying something they dont need.

The bathtub curve's measure of product reliability: The "science" behind the MA

There is a term in the product reliability field called the bathtub curve. It reveals that during a product's infancy, a spike of errors has a chance of occurring if you remember to often run the product continuously for a few days at a time to test it out. Any defects should come out during this stage if you do that, and would be covered by the basic warranty.

After this infancy stage comes the long period of the product's main life cycle where the product works with very few failures. Then as the product reaches the end of its useful life cycle, failures begin to increase.

When the probability of product failure is graphed out according to these stages of the life cycle, it looks like the shape of a bathtub. The lowest chance of problems occurring with the product is during the long period between the infancy stage and near the end of the product life cycle. This long period where very few problems occur is what the MA's and extended warranties try to cover.

Understanding benefits in terms of tradeoffs

For most people the MA ends up being a waste of money, because they either don't use it or forget to use it. After all who has time to remember to get an annual maintenance check, especially if it's a shop MA where you have to bring it into the repair shop, as in the case of a portable item like a microwave? Think of it in terms of tradeoffs. If the MA really benefited the consumer, then Sears wouldn't be offering it, because if it actually saved people money, then Sears would be losing money!

The consumers' right to be informed

Now there are going to be those who will say to me "So what? Everyone has a right to try to make a profit. What's wrong with that?" and I'll respond to them by saying that yes everyone does have a right to make a profit, including those behind get-rich-quick schemes, multi-level marketing companies, infomercials, etc. However, we the consumers also have a right to educate ourselves about misleading claims that companies make and the fear tactics they use to get our money.

Certain products that may be worth the MA

In spite of the general unworthiness of MA's and other extended warranties, from what I've heard there are exceptions for a few products that might be worth getting an MA on. Some examples are lawnmowers, snowblowers, digital cameras, laptops and big screen TV's. With lawnmowers, necessary annual tune-ups may be expensive and if your MA covers three annual tune-ups, then it may well pay for itself as well as give you insurance against product failure.

Certain high tech electronic products such as digital cameras, laptops and big screen TV's may also benefit from an MA or extended warranty due to their fragile components, which if broken could cost more to fix than replacing the product whole. Nevertheless, despite these exceptions MA's and other extended warranties have still proven to not be worth the money in general terms.

I'm just giving you the odds, not saying never

Now let me clarify something here. I'm not saying here that the MA is never profitable to the consumer, or that the MA will never come in handy to people. I'm not saying that 100% of the time you buy an MA, it's a ripoff. No, there are always a minority of people for whom it will pay off for because something breaks through normal wear and tear during the 3 year term of the MA.

Conclusion and recommendations

Now that I've informed you about the truth of the MA, you should be better equipped to make a qualified decision on whether or not you need the MA and if it's right for you. I'm betting that most of you won't think so after you've heard what's behind it all.

So for those of you who wish to retaliate against the brainwashing fear tactics of the MA and other extended warranties, what I would recommend to everyone is this. If you've already bought an MA, then do one of the following.

1) Start using your MA by getting the most value from it. Start making service calls for any little defect you find, and get your annual preventive maintenance check and demand that they do a very thorough check of it. If everyone with MA's used their MA's fully, then it would send a message to Sears that they can't get away with taking extra money from people for nothing anymore.

2) make sure your product is in good working condition and then simply cancel your MA and get the unused portion for the remaining time period refunded to you. You can call Sears for either of these two things at 1-800-4-MY-HOME.

If you don't have an MA, then next time you go into Sears to buy an appliance or electronic product and the salesman brings up the MA, I suggest that you simply say "Well if you think I'll need an MA on it, then I don't want it! Who wants an unreliable product?"

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