You just purchased a new large screen plasma TV and the salesman tells you how important it is to get an extended warranty. Repairs are costly and this coverage will bring peace of mind as you sit and enjoy your state of the art TV. While in the store you also spotted a digital video camera on sale and figure while you are at it you will purchase that as well. Again, you are invited to purchase an extended warranty. What do you do? These are costly items and the thought of paying more for repairs is not appealing.
Extended warranties are the bread and butter of most electronics retailers. Profit margins on electronics are decreasing with each product release. Industry analysts report that prices on state of the art TV's fall by over 40% every year and a half. This can have a negative effect on profits at big boxes like Circuit City and Best Buy. Although these two mega electronics retailers do not report profits from extended warranties, analysts estimate these services accounted for almost fifty per cent of Best Buy's operating profit. Without extended warranties Circuit City might very well have posted a loss in recent years instead of a half a million dollars in profit. So you can see why when you purchase an item, extended warranties are pushed. The company is not making much of a profit on the item. They are making it on the almost always never used extended warranty.