Connected Corners

This topic aims to introduce the concept of smart warranty in the era of connected devices as well as some of the key benefits and challenges it presents to value chain players & consumer alike

Concept of smart warranty

A thought struck me as I switched on my smart TV after a few days of hiatus… I’ve barely used it more than a couple of hours/week and yet it is already out of warranty! …Now only if it were covered by smart warranty!

Traditional warranty has room for innovation

The underlying concept of traditional warranty (aka device protection, product coverage, et al.) for most part has been relatively similar across the board for eons… i.e. a set of terms & conditions – generally presented as a contractual commitment – stipulating that the manufacturer/provider would repair or replace the product if doesn’t function as originally promised within a pre-determined period…

…that may vary significantly (terms, inclusions, coverage details, et al.) by individual manufacturer &/or provider and be based a multitude of factors such as product type, local regulations, market & competitive landscape and more

Designing a warranty program typically takes into consideration a permutation of actual & simulated device failure tests (lab, real-world, etc.) that is augmented with complex statistical modeling (historical, predictable, DOA, etc.) and has worked adequately for mostly ‘offline’ products…

…but one key limitation of most traditional warranty offerings is its one-size-fits-all model that doesn’t distinguish between how the product is being used in real time (read: wear & tear); particularly in an era of connected & IoT devices

Enter smart warranty!

In an era where almost every product is getting connected; there is an opportunity for manufacturers to develop and offer unique warranty programs that leverage the real-time usage behavior…. i.e. smart warranty

One key benefit of connected products (toasters, TVs, cars, et al.) is their ability to produce a smorgasbord of data points in real time that carriers an intrinsic commercial value for whoever owns it… usage statistics is one such data point

This usage data (depending on the connected product type) could be used as a key consideration in building tailored smart warranty programs that could help manufacturers/providers uncover new revenue opportunities and ensure better CX & engagement in the long run

For example; the more the device is used, the closer it could get to it’s failure threshold, therefore warranties could be custom designed, priced & offered to each individual user in real-time accordingly… based on similar principle to that of usage based insurance (UBI)… hence usage based warranty (UBW)

Smart warranty (Usage Based Warranty) – Key Benefits

As with most modern insure-tech offerings such as Usage Based Insurance (UBI) offerings; Usage Based Warranty (UBW) propositions too present a myriad of benefits; 4 key ones being –

1. Real time personalized warranty propositions

Manufacturers could leverage real time usage & diagnostic features of the underlying connected product to design & offer smart warranty offers that are tailored to each individual user &/or device… theoretically in real time

For example; manufacturers could monitor the connected device’s usage (& fail rates) in real time ➜ in turn performing real time statistical modeling & AI simulations (usage-to-date, estimated future use, predicted failure rate, etc.) ➜ in turn continuously optimize (read: personalize) warranty offers through the device’s lifecycle for each individual user

When done right; benefits of offering personalized warranty propositions may also include better CX & customer engagement, potential revenue growth and even savings (from out of warranty returns & un-forecasted repair claims)

2. Maximize extended warranty take-up

In addition to traditional fixed term extended warranty options (typically offered as an add-on at POS); manufacturers could offer customers the choice of an ongoing Variable Extended Warranty (VEW) proposition…

…that accurately evaluates the device’s usage in real time and presents customers with the option to purchase tailored warranty extensions at any point through the connected product’s lifecycle… perhaps right on the connected device itself

3. UBI bundling opportunities

Being connected device centric proposition; manufacturers/providers could in theory bundle their UBW smart warranty offers with UBI insurance propositions to maximize revenue potentials and enhance customer engagement with the brand

Consumers would not only benefit from a receiving a multi-user &/or multi-contract UBI + UBW bundling discounts (as opposed to taking each of them separately) but also other benefits such as single billing & common helpline for all of their support, repair & replacement needs

Additionally; UBI insurance providers could gain the ability to base the connected device’s depreciation (read: influencing replaceable/repairable value) on its real-time usage; thereby ensuring an even more robust predictability modeling on key insurance metrics (premiums, co-pays, deductibles, etc.)

4. B2B partnerships & revenue sharing

Manufacturers may choose to extend the actual development of smart warranty propositions by existing specialized 3rd party warranty providers through a myriad of partnership models; with one of them being a revenue share type of agreement

For example; a connected vehicle manufacturer (who may also be the connected data owner) could partner with specialized insurance & warranty providers (read: allow them access to required vehicle datasets) in order to build specialized UBI & UBW propositions that could be then be offered to vehicle owners through a myriad of commercial propositions

Smart warranty – Key challenges

As with any commercial solution, manufacturers/providers may experience a variety of challenges in developing their smart warranty value proposition; ranging from significant capital investments through to accurate revenue modeling, regulatory & privacy controls and everything else in between

One key challenge for manufacturers/providers developing smart warranty programs could be the upfront & ongoing outlay (capital & resources) in developing its underlying platforms, systems, technologies & toolkits…

…that could also entail investing in entire digital infrastructure ecosystems (data centers, AI & ML platforms, et al.) required to collect, analyze & store volumes of data points in real-time… from the ground up!

Add to that the compliance with local regulatory & privacy controls; particularly as it pertains to commercializing variable extended warranty (VEW) propositions in regions where minimum warranty terms are stipulated by the local government

And then there is the challenge of ensuring viable consumer adoption & retention (read: renewals) rates of the smart warranty & personalized VEW programs that not only offset its associated costs but to ideally generate a net positive ROI

As with any innovative solution; manufacturers & providers could seek to mitigate these challenges in a variety of ways; for example manufacturers may offer VEW programs as a standalone value add-on solution in addition to the standard warranty program mandated by local regulations

As the smart warranty ecosystem matures over time, so too would its underlying data analytics & AI algorithms… allowing for continuous improvement in real time pricing & offers that maximizes revenues & ROI

So…

Whilst it may be adequate for most offline products; traditional warranty programs may not necessarily be an ideal fit in an era where IoT, connected devices & vehicles are soon becoming the norm… simply due to the fact that it doesn’t account for real time usage behavior…

…which; can be leveraged to build smart warranty or Usage Based Warranty (UBW) that can be tailored to each individual user as well as the connected device itself to potentially maximize revenue, enhance CX and better manage product returns & future failure rates

Smart warranty also shares many of its benefits with it’s insurance brethren; particularly Usage Based Insurance (UBI); which itself is undergoing rapid evolution attributed to a proliferation in consumer IoT, gig economy & connected vehicles…

… as well as many of the challenges & underlying complexities such as investment costs, ecosystem build-up, regulatory & privacy compliance and more…

…that would vary by manufacturer/provider and be based on myriad of inter-dependent factors such as region of operation, provider type, product/category covered, services & pricing model, technological capabilities, regulatory & privacy requirements, et al.

Much is yet to be explored within the broader fin-tech & insure-tech categories; so this topic merely scratches the surface in starting a dialogue on smart warranty…

…with forthcoming topics exploring smart warranty program in further detail, including use case scenarios, concept framework, underlying technologies and commercial models

Stay tuned!