Durable Product Purchase Decisions: Influences of Retailer Warranty Extension Information Sequencing

Abstract

This research investigates two popular ways retailers provide information about the availability and the characteristics of retailer-backed warranty extensions to consumers. With a sequential strategy, retailers draw customers' attention to an extended warranty offer only after the customers have chosen specific versions or brands of a durable product. A simultaneous strategy instead provides information about durable products and extended warranties together, prompting customers to consider the extended warranty offer while making their product choice. The warranty extensions on durable products often provide higher margins, so retailers seek to boost the sales of these warranty extensions. This experimental study uses laptop computers as the focal product category to compare the effects of sequential and simultaneous information on customer decision making. The total value of purchases consistently increases when information about durable products and extended warranties appears sequentially. These results imply that retailers can increase revenues merely by providing information sequentially instead of simultaneously.

Keywords: add-ons, sales strategy, mental budgeting, context-dependent preferences, sequential decision making, myopic consumer behavior

JEL Classification: M39, D11, C11