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wouldn't you think the warranty costs more for each year you extend it?

Posted on 2013-06-05
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Last Modified: 2016-11-23
We were putting together a proposal for a client for a Dell laptop. on the
premier website they have the options for warranty and complete care.

we usually include a 3 year warranty and for laptops, include completecare.

We listed an option to increase to 4 years for both. The premier website says
that it would be $60 more for the warranty and $18 more for the complete care,
equaling $78 to cover the 4th year.

Am I correct to think that as the machine ages, the cost to warranty it would
increase? But to increase from 4 to 5 years, it is $54 additional for the
warranty and $12 for complete care = $66 to cover the 5th year. Especially for
laptops getting jostled and with their model specific parts, a long warranty
would make sense and is needed more than on a desktop, I have always thought.

And for the full range of years:

For basic service:
to go from 1 to 2 years, add $37
To go from 2 to 3 years, add $71 (an increase as expected, as the machine ages)
from 3 to 4 add 60 (huh?  A drop?)
from 4 to 5 add 54 (and a bigger drop?)

For pro support:
to go from 1 to 2 years, add $56
To go from 2 to 3 years, add $77
from 3 to 4 add 72 a drop, as not expected
from 4 to 5 add 78 ok, a little increase

Am I missing something here? All I can think is that they expect people to throw
away the machine before the 4 and 5th years to help explain why the warranty is
cheaper the farther out you go. If you don't get breakage coverage, then yes,
over time, breaking the machines will keep you from having it to make a warranty
claim. But the breakage coverage incremental cost is nominal. $95 for the 5 full
years of being clumsy.
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4 Comments
 
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by:convergint
convergint earned 250 total points
ID: 39223825
Nope you are not missing anything.  We only purchase 3 year warranties but have a 4-5 year lifecycle.  The reasoning for us is that by the time the laptop is 3 years old, it's value is usually about $200 (the new price is usually $1600).  So we would need every third or fourth laptop to completely die to make the upgrade warranty cost effective.

Since we are purchasing Latitudes which is a corporate grade laptop, we probably have about a 5% failure rate at the 3-5 year cycle.  At that point, it is much more effective to upgrade the user to a new laptop anyways.

This is also the same reason we never purchase the 3 year extended battery warranty for $70.  A new battery is $120.  So the 3 year warranty is only useful if we think that every third battery will die.

It's all about playing the odds basically.
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Accepted Solution

by:
John Hurst earned 250 total points
ID: 39223983
I see the same kind of pricing for Lenovo. The costs do not escalate much for years 3, 4 and 5. I think this is because we purchase the commercial grade machines and they are good for 5 years. So the manufacturers, while playing the odds (which is what warranty charges are about), know that there is no hugely more likelihood of higher repair costs in year 4 and possibly 5.

Anecdotally, I got my ThinkPad T61p in 2008 and I ran it for five full years. A hinge broke. I had a 4 year warranty on it, so had to pay for the repair. But it is now a fully working Windows 7 spare for me.

I got a ThinkPad X230 with Windows 8 and I had to settle for a 3 year warranty because the 5 year warranty included accidental breakage and was overpriced because of that. But the 3 year warranty was in line with the cost of the T61p warranty.

So what you are seeing is reasonable.

.... Thinkpads_User
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Author Comment

by:BeGentleWithMe-INeedHelp
ID: 39224388
thanks.  still, a warranty that drops in price as it gets older just seems weird.  I guess it's front loaded.  

take care.

thanks for the sanity check!
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Expert Comment

by:John Hurst
ID: 39224393
@BeGentleWithMe-INeedHelp - You are most welcome and I was happy to help you with this.


... Thinkpads_User
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