Extended warranty as alternative to PaaS?

On this blog we’ve dedicated multiple articles explaining why Product-as-a-Service (PaaS) is an important piece of the circular puzzle. From detailing the environmental benefits to declaring it a sustainable solution. The most important reason why a PaaS model could work is that it forces producers and vendors to focus on delivering long-term continuous value for the customer. However, is that unique to this particular family of business models or are there other models that could have a similar effect? I think that perhaps there is such a model: The extended warranty.

A rare breed

While most producers give warranties limited up to the legally required minimum, there are exceptions. Warranties of 5 to even 10 years do exist, but they are usually reserved for products with a much longer expected lifespan. In essence, there is little added value in the length of such a warranty. Truly useful extended warranties are very rare. A lot can happen during the lifetime of the customer, so why take that risk from a business point of view? Off course there are products where you could conceivably give an extended warranty for. A dining table is a simple example. Some dining tables last generations without major renovations or the need to replace parts. However, most products are stressed more and are by design less able to withstand it. Still I think that there is a way that a producer can make that extended commitment without hurting its future prospects.

Extended upsell

To extent the duration of a warranty is an upsell that’s popular for consumer electronics. The possibility to upsell is very valuable and selling, what is basically a limited insurance plan, could be a very safe option for the vendor. However, it also needs to be an appealing proposition for the consumer.

Human-centered design – proper design

A product with an extended guarantee must obviously be tough enough to withstand usage, and proper design can help with that. Next to durability, repairability is also important. Living up to a promise to keep a product functioning during the customer’s lifetime means repairs are sometimes required. Making it easy and affordable to repair will save costs in the long run. 

However, proper product design could create products that are not only sturdy enough to be durable but are designed in such a way that users use them more carefully and effectively. Using the design philosophy of ‘human-centered design’, we could develop better products that last longer and keep the consumer satisfied. Human-centered design focuses on the true needs, the problem, that the consumer wants to tackle, and tries to find a solution for that actual problem, not just the perceived problem. To illustrate: A consumer might demand a car, but the actual need is transportation, for which a motorcycle might be a cheaper and more convenient option. 

Tip: One of the most popular and accessible books in the school of human-centered design is “The Design of Everyday Things” by design researcher Don Norman. 

Knowing the consumer and creating the product to match

For human-centered design it is essential to truly know your customer: Who are they, how do they live their lives, what kind of problems do they face on a daily basis, and what kind of problem do you want to solve as a designer? Those kinds of questions are important. 

Next you need to determine what action you want to achieve with your product. Really ask the hard questions to find what you really need to design. To create a product to match the need of the customer.

Tip: To learn more about the human-centered design-process, read this blog by DC Design about their own approach to the design philosophy: https://medium.com/dc-design/what-is-human-centered-design-6711c09e2779

Human-centered design and sustainability

In essence human-centered design often coincides with more sustainable design. Because consumers want products to last longer and suit their actual needs. This would mean less waste and more usage out of the product and its constituting materials. 

Sustainability is not necessarily fit with human-centered design principles, since sometimes the best solution to a user’s problem requires a bad solution from an environmental/sustainability perspective. For instance, using rare and non-renewable materials or materials that cause toxic waste at the end of their lifespan. However, this would only be the case when using the term in a narrow, individual sense. Properly understood, it isn’t human-centered if it is bad for the world at large in the long run.

Extended warranty versus product subscriptions

Product subscriptions offer ongoing benefits and services throughout the life of the product. These can include access to training, firmware updates, and customer support. Product subscriptions can be a more cost-effective way to receive ongoing benefits, especially if the consumer plans on using the product for an extended period. 

However, subscriptions can be viewed as costly because it also factors in the retail price of the product itself. An extended warranty is extra on top of the already paid purchase amount. Paying 100 euros outright for a product and buying an extended warranty for 20 euros can be perceived as a better deal than paying a similar amount spread out as monthly subscription costs over the lifetime of a product. Even if the product subscription is more economical over a certain amount of time some consumers may not feel it that way. An extended warranty can in some cases be a solution for getting similar environmental benefits without the need for a product subscription option. My advice is to explore this option as an alternative when thinking about setting up a product as a service proposition.