EXTENDED WARRANTY CHANGE MANAGEMENT: MAINTAINING THE COMPETITIVE ADVANTAGE. Terry Hawkins August 2012

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1 EXTENDED WARRANTY CHANGE MANAGEMENT: MAINTAINING THE COMPETITIVE ADVANTAGE Terry Hawkins August 2012

2 OVERVIEW Introduction Evolution of service contracts Image Issues Modernize the Product Applying Technology

3 History [Insert Warranty] Service Contracts have been around for at least 75 years Not much by way of innovation Same coverage and many of the same exclusions

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5 RETAIL EVOLVING

6 RETAIL EVOLVING 1850 Single line stores (e.g. boots & shoes, cutlery & hardware, finery, etc. Occasionally two lines combined if local circumstances required 1888 Sears catalog watches and jewelry catalog 1896 Sears first general merchandise catalog 1925 Sears first store 1962 Sam Walton launches Walmart In depth study of discount retail preceded 1994 Amazon founded 2012???

7 DYNAMICS CHANGING In 2011, large appliances sales were down 5.1% ( Wall Street Journal, May 29, 2012) Not only are sales down, buying pattern is shifting Sales of consumer electronics shift away from small dealers to big box to on-line sales Consistent retail pricing pressures Disposable income under pressure from higher gas prices and soon to be higher food prices

8 RESULTING PRESSURES As retail changes service contract providers must change Pricey service contracts are harder to sell Image issues persist Providers must rethink features and benefits Alternative selling/billing channels Using technology to improve all aspects of the business Social media understanding and managing your position

9 GROWTH OF MOBILE The 4th of July may be over, but major fireworks are ahead for the mobile payments industry according to a new report from Juniper Research. Juniper estimates that he total value of mobile payments for digital and physical goods, money transfers and NFC (Near Field Communications) transactions will hit $670 billion by 2015 a remarkable jump from $240 billion this year. These forecasts represent the gross merchandise value of all purchases or the value of money being transferred. Juniper says the growth will be sweeping across the industry and across the forthcoming years. The new Mobile Payments Strategies report revealed that all segments will exhibit 2x to 3x growth over the next five years. The anticipated growth, the research firm says, will largely be driven by the rapid adoption of mobile ticketing, NFC contactless payments, physical goods purchases and money transfers as people in both developed and developing countries use their devices for everyday transactions. Our analysis shows that emerging segments such as physical goods payments, NFC and money transfers will fuel market growth by a factor of 2.7 times by 2015, writes Juniper senior analyst David Snow. Digital goods is the largest segment and, although forecast to more than double, it is not growing as quickly as some of the newer segments. The top 3 regions for mobile payments (Far East & China, W. Europe and N. America) will represent 75% of the global mobile payment gross transaction value by 2015, Juniper says, add in that digital goods payments will account for nearly 40% of the market in Juniper s new Mobile Payment Strategies: Opportunities & Markets can be downloaded now at no charge from Posted on 05 July 2011

10 SHOPSAVVY 45-60% of smartphone users conducted due diligence on store prices and inventory in 2010 $50 billion will be spent on merchandise using a smartphone by 2014

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12 January 30, 2012 Why Bricks & Mortar Retail Will Continue to Get Harder Mobile Price Comparisons Category: Google Places (Maps & Local) Mike Blumenthal 10:47 am Pew Research just released a report on The rise of in-store mobile commerce that looked at how Americans used their phones to assist with purchasing decisions this holiday season. In aggregate 52% of users relied on their cell phone to either check with a friend, look at product reviews or check pricing online. Younger users were significantly more likely to do so than users over 50. It means that any store selling commodity retail products can look at significant price pressure from this behavior. It also means that even super stores will be under continuing pressure. The likes of Staples, KMart, Best Buy, Barnes & Noble and others are likely to see significantly less profitability and be under threat.

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14 THE POWER OF LIKE

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18 MONETIZING SOCIAL MEDIA Facebook has an effective strategy for desktop users Struggling to find a way to make it work in mobile applications Pressure is on to develop strategy for mobile devices 901 million active users monthly, 500 million mobile users Bloomberg, July 13, 2012

19 REACTIONS Increased mobile usage increases pricing pressure Counter savvy mobile marketers will deploy mobile advertising Tough economy fewer consumers and less disposable income amplifies the pressure Service and convenience will be critical Effective use of social networking will be key

20 It is not the strongest of the species that survive, nor the most intelligent, but the one most responsive to change. Charles Darwin

21 BEST BUY CHALLENGES

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24 And it has become much easier for consumers to compare prices -- ironically, using applications on the smartphones they can purchase in Best Buy. Shoppers can visit Best Buy stores to examine items before buying them elsewhere. Or, as Greg Melich of research firm ISI Group says, they are using Best Buy as Amazon's "showroom." Yahoo Finance, citing The Wall Street Journal, March 7, 2011

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27 SHOWROOMING FIGHTING BACK Merchandising great displays and classy arrangements Ensure prices and offerings are competitive Pushed coupons Use coupons on mobile devices for searches Bid by location Google has an enhancement that allows advertisers to advertise pricing by proximity Suzy Sandberg Mobile Marketer Daily May 15, 2012

28 Best Buy, Gap, JCPenney Taking advantage of mobile

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30 Best Buy Issues Despite the exit of major competitors such as Circuit City, Best Buy is losing market share Best Buy lost 40% of its value in 2011, 60% since April 2010 P/E is 6.23 vs. industry average of 10.2 Its market cap is less than $9B Analyst rating is a B- March 30 it announces its closing 50 of its biggest stores April 10 its CEO resigns over personal conduct issues

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32 Best Buy New Directions Shifting technology and changing tastes are pushing Best Buy into a marketplace we weren t prepared for Reeling from blow after blow Reduce square footage, less focus on selling hardware and more on services Geek Squad, less focus on repairs and more on relationships CEO is interim, many pushing for CEO with more e commerce experience $1.7B Cash and Still Cash Flow Positive!

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34 Ken Crane s What happened?

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37 IMAGE ISSUES

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44 Change is the law of life. And those who look only to the past or present are certain to miss the future. John F. Kennedy

45 CHANGE FOR SUCCESS

46 IDEAS FOR INNOVATION As retail changes service contract providers must change Consider contract sales as part of service Direct to consumer focus (phone, mail and e mail) Product innovation Tie-in to mobile payment phenomenon Changing pricing strategy Improved on line strategy

47 SQUARE TRADE

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52 Best Buy On-Line Offer

53 ASSURANT

54 THE PURCHASING PROCESS

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58 SEARS

59 SEARS Share performance 2012 What is Sears doing? Revamping organization $25.20 $31.43 $56.63 Cost reduction Inventory management $41.6B in revenue ($3.1B) loss

60 ALTERNATIVES TO TRADITIONAL RETAIL On line sales - Connected to product sales - Stand alone sales - Product bundles Direct to consumer - Direct mail - E mail - With the product OEM s managing their own program Innovation and Change will be Key

61 HOW TO SUCCEED IN E TAIL Mobile is still small, but growing very fast we have shopping apps, price check apps. Best Buy is using foursquare to help offer deals to customers when they recognize they walk in their store. There is a lot going on both with internet only retailers and multi-channel retailers. I think specific to service contracts, providers need to find a way to make these valuable/compelling when there s no sales person pushing it or discounting it and the product to bundle it together. Conversion rates will naturally be lower online, So service providers must come up with new models, Great Service/Ratings a Must

62 OTHER IDEAS Simplify the process of buying Keep consumer info to the minimum T&C s by e mail Innovation required: consider smart phone photo of product or bar code scan for product ID Reach out by e mail Tag consumers who abandon (may have just been interrupted) and reach out by e mail Follow up during OEM warranty by e mail for POS miss

63 PERSONALIZED URL (PURL) Direct mail campaigns are not enough to reach tech savvy consumers Web sites may be too passive The solution is to add a PURL to the marketing campaign: Increase response rates Add services (warranty tracking, product registration, etc.) Customize the consumer interaction Insights into consumer behavior Convert more prospects

64 UNDERWRITING CONSIDERATIONS On line purchases may be subject to adverse selection issues POS or purchases within the first 30 days are likely safe Aftermarket sales likely to perform similar to direct mail offerings higher loss expectations Shorter terms should be considered Loss experience must be closely monitored

65 You can't expect to meet the challenges of today with yesterday's tools and expect to be in business tomorrow. Unknown Source

66 SERVICE

67 SERVICE SOLUTIONS Tech savvy consumers will want tech savvy service solutions Provide for self help On-line streaming video and technical support is a plus Allow for on-line scheduling Opportunity to sell accessories and consumables

68 A service WOW! KINDLE SERVICE

69 SCHEDULE SERVICE

70 SUPPORT OPTIONS

71 ON LINE HELP

72 PROTECT YOUR IMAGE

73 SOCIAL MEDIA

74 ITS ALL CHANGED Little Control Over Public Image: Advertising and press releases no longer control Opinions are freely shared Consumers do their research before buying Government Agencies Reach Consumers Directly NHTSA, CPSC and others actively collect, analyze, and disseminate consumer complaints

75 PERCEIVED QUALITY It is: Customer s perception of overall quality or superiority of a product or service with respect to its intended purpose, relative to the alternatives It is not: Actual or objective quality Product-based quality (ingredients, features, etc.) Manufacturing quality: conforming to specs, zero defect

76 AN APPROACH Scour the web pull information from a vast array of online sources Integrate with internal data sources Organize it Present it in a way to facilitate decisions Convert data exhaust into information

77 CONCLUSION Retail is rapidly evolving The extended warranty business must adapt Service solutions must be consistent with the needs of tech savvy consumers There will be an on-going struggle to manage consumer perceptions of products and services

78 THE ONLY ONE WELCOMING CHANGE IS A BABY WITH A DIRTY DIAPER