ccs final report - indian institute of management...

22
Under the guidance of, Prof. Srinivas Prakhya Associate Professor, Marketing Indian Institute of Management, Bangalore Ayush Kumar PGP 201517 Roll No.: 1511086 Dharmendra Hiranandani PGP 201517 Roll No.: 1511091 Contemporary Case Study

Upload: hoangtruc

Post on 29-Jun-2018

212 views

Category:

Documents


0 download

TRANSCRIPT

           

       

     

Under  the  guidance  of,  

Prof.  Srinivas  Prakhya  

Associate  Professor,  Marketing  

Indian  Institute  of  Management,  Bangalore  

Ayush  Kumar  

PGP  2015-­‐17  

Roll  No.:  1511086  

 

Dharmendra  Hiranandani  

PGP  2015-­‐17  

Roll  No.:  1511091  

 

Contemporary  Case  Study              

1  |  C C S :   W a r r a n t y   a n d   C o n s u m e r   B e h a v i o u r    

Acknowledgement  We  would  like  to  present  our  sincere  gratitude  towards  our  guide,  Prof.  Srinivas  Prakhya  for  his  excellent  guidance  throughout  the  course  of  this  project.  The  lengthy  discussions  in  his  office   room  were   the   source   of   immense  motivation   for   us,   academic   and   otherwise.  His  unwavering  confidence  in  our  abilities  and  his  persistent  encouragement  made  this  journey  thoroughly  enjoyable.  

We   would   like   to   thank   our   friends   Mayank   Agarwal,   Ankur   Jhavery,   Rishabh   Raj   and  Prabuddha  Guha  for  the  numerous  discussions  we  had  on  the  topic.  

Contents  Acknowledgement  ............................................................................................................  1  

1   Objectives  and  Decision  Problem  ................................................................................  1  

2   Introduction  ...............................................................................................................  1  

3   Methodology  ..............................................................................................................  2  

4   SECONDARY  RESEARCH  ..............................................................................................  2  

5   QUALITATIVE  ANALYSIS  ..............................................................................................  4  5.1   Laptop  vs  Mobile  .................................................................................................  4  5.2   Risk  Hedging  ........................................................................................................  4  5.3   Ease  of  Service  &  Service  Quality  .........................................................................  4  5.4   Repair  Cost  ..........................................................................................................  5  5.5   Hidden  Costs  .......................................................................................................  5  5.6   Warranty  Purchase  Rationale  ..............................................................................  5  

6   Key  hypothesis  ...........................................................................................................  5  6.1   Qualitative  reasoning  ..........................................................................................  6  

7   QUANTITATIVE  ANALYSIS  ...........................................................................................  7  7.1   Structure  of  survey  ..............................................................................................  7  7.2   Survey  participants  ..............................................................................................  7  7.3   Survey  questions  .................................................................................................  7  7.4   Survey  analysis  methodology  ..............................................................................  7  7.5   Survey  results  ......................................................................................................  8  

8   Conclusion  ................................................................................................................  15  

9   Way  forward  ............................................................................................................  15  

Appendix  1  (Questionnaire)  .............................................................................................  16    

   

1  |  C C S :   W a r r a n t y   a n d   C o n s u m e r   B e h a v i o u r    

1   Objectives  and  Decision  Problem  The   aim   of   this   project   is   to   understand   the   uncover   the   underlying   consumer   purchase  decision   behaviour   pertaining   to   extended   warranty   on   laptops   and   mobiles.   Under   the  purview   of   this   project,   we   aim   to   answer   the   following   questions   through   primary   and  secondary  analysis:  

•   How   do   the   consumers   evaluate   the   warranty   purchase   decisions   i.e.   what   is   the  decision  making  process  behind  warrant  purchases?  

•   To  test  our  hypothesis   that  warranty  purchase  decision  depends  heavily  on  useable  life  of  the  product.  

•   Does  quality   of   extended  warranty  depend  upon   the  position  of   the  product   in   the  Product  Life  Cycle  (PLC)  curve  i.e.  does  warranty  act  as  a  differentiator  for  products  in  matured  industries  for  e.g.  PC/  Laptop  industry.  

 

2   Introduction  To  demonstrate   the  quality  of   the  product   to   the  consumers,  marketers  have   increasingly  started   to   use   an   indirect   approach   in   the   form   of   warranties.   Warranties   are   not   the  intrinsic  cue  of  the  product  but  they  act  as  extrinsic  cues  and  helps  consumers  to  make  an  inference  of   the  product  quality.   In   recent  years  much  attention  has  been   focused  on   the  warranties   provided  on   automobiles,   laptops   and  other  major   consumer   expenditure   and  durable  items.  Also  retailers  in  the  past  decade  have  increasingly  started  to  offer  extended  warranties   on   durable   goods.   These   kinds   of   warranties   provide   companies   with   an  additional   source   of   revenue   as   in   most   of   the   cases   the   prices   charged   for   extended  warranties  is  on  an  average  higher  than  the  expected  cost  of  repair.  Warranties  also  appeal  to  the  consumers  by  reducing  their  overall  perceived  risk.  

For   the   scope   of   this   CCS,   we   have   decided   to   compare   warranty   buying   decisions   and  consumer  behaviour  pertaining  to  two  consumer  electronic  items  namely  laptop  and  mobile  phone.  In  the  early  phase  of  the  project,  we  had  many  consumer  durables  in  mind  like  CFL  bulbs,   automobiles,   luggage   suitcases   etc.   but   finally   we   zeroed   down   on   laptop   and  mobiles.   The   reason   for   choosing   these   two   specific   products   comes   from   the   fact   that  despite  of  not  much  variation  in  their  prices,  the  warranty  purchase  behaviour  of  customers  pertaining  to  both  the  products  is  very  different.  This  difference  primarily  arises  because  of  the  fact  that  the  useable  life  of  both  the  products  is  very  different.  So  to  further  dig  deeper  and  to  uncover  the  basic  consumer  rationale  behind  their  warranty  purchase  decision,  these  two  products  were  chosen.    

 

2  |  C C S :   W a r r a n t y   a n d   C o n s u m e r   B e h a v i o u r    

3   Methodology    Stage  1   -­‐   Literature  Review:   To   get   a   better   idea  on  warranties   and   consumer  behaviour  pertaining  to  purchase  of  the  same,  we  read  and  analysed  the  journal  warranty  policy  and  extended   service   contracts:   theory   and  an  application   by  V  Padmabhan  and  Ram  C  Rao.  The  paper  talked  about  how  consumers  try  to  maximise  their  utility  and  make  a  choice  of  warranty  in  the  context  of  automobiles.    

Stage   2   -­‐     Qualitative   Analysis:   After   Taking   some   cues   from   the   journal   we   created   a  primary  script  for  the  in  depth  interviews.  The  interviews  were  kept  open  ended  and  to  dig  deeper,  laddering  techniques  were  used.  A  total  of  7  respondents  which  were  students  from  IIM  Bangalore  were  chosen  for  qualitative  analysis.  

Stage   3   -­‐     Quantitative   Analysis:   After   getting   rich   insights   from   qualitative   analysis,   a  questionnaire  was  created  and  IIM  B  students  were  chosen  as  the  respondents  set.  A  total  of  42  students  filled  the  survey  and  using  the  same  statistical  significance  tests,  Multivariate  Regression,  T-­‐  tests,  Hypothesis  tests  etc.  were  conducted  to  statistically  test  the  validity  of  claims.  

 

4   SECONDARY  RESEARCH  For  consumer  durables  providing  an  extended  warranty  can  be  a  profitable  business,  for  few  categories  like  laptops,  automobiles  etc.  the  warranty  market  has  evolved  greatly  in  the  last  few   years.   The   focus   of   this   research   lies   on   two   products,   laptops   and   mobile   phones.  Warranty   is   one   of   the   major   factor   that   consumers   seek   for   while   making   a   laptop  purchase,   this   is   evident   from   the   fact   that   almost   all   major   players   competing   in   this  industry  not  only  provide  default  warranty  with  the  product  but  also  have  extensive  plans  for  extended  warranty  that  customers  can  choose  from.  Figure  1  provides  default  warranty  and  extended  warranty  options  that  brands  provide  to  the  customers.  

 

 

 

 

 

 

Standard  warranty

Extended  warranty

Figure  1|  Warranty  trend  in  laptop  |  Source:  Secondary  research  via  company  websites  

3  |  C C S :   W a r r a n t y   a n d   C o n s u m e r   B e h a v i o u r    

As  is  evident  from  the  above  figure  that  almost  all  major  laptop  industry  players  like  Acer,  Apple,  Dell,  HP,  Sony  and  Toshiba  provide  an  option  of  purchasing  an  extended  warranty  to  the   customers   and   all   the   brands   provide   standard   warranty   with   the   purchase,   this   is  clearly  and  industry  wise  norm  in  laptop  category.  Few  of  the  brands  like  Asus  and  Samsung  which  are  relatively  new  entrants  in  the  laptop  industry  provide  an  option  of  Extra  Warranty  at  free  of  cost,  which  can  be  a  technique  for  including  their  brands  in  the  consideration  set  of  the  customer  while  evaluating  different  brands.  Also,  according  to  some  scholars  this  of  providing  free  warranty  acts  as  an  exogenous  signal  of  superior  product  quality  which  seems  like  a  fine  strategy  for  companies  like  Samsung  and  Asus  which  already  have  a  pre-­‐existing  brand   equity   due   to   their   products   in   other   electronic   categories.   The   price   charged   by  different   players   for   the  option  of   extended   service  warranty   is   provided   in   the   following  table:  

Table  1|  Extended  warranty  price  in  laptop  |  Source:  Company  websites  and  retailers  

Brand   Extended  Warranty  (years)  

Price  (INR)  

Dell   2   9000  Hewlett-­‐Packard   2   6500  

Apple   2   16800  Lenovo   2   5000  Acer   2   8000  

 

Though  some  brands  in  the  above  table  provide  extended  warranty  for  up  to  three  years  but  for  simple  comparison  the  time  period  has  been  taken  as  two  years  which  along  with  initial  warranty  of  one  year  almost  equals  the  average  useable  life  of  a  laptop.  So,  on  an  average  the  price  of  extended  warranty   for   two  years   for   laptop   industry  comes  out   to  be  around  INR  7,500.  

Warranty   in   case   of   mobile   phones   works   differently,   unlike   laptops   none   of   the  manufacturers   currently  provide  accidental  damage  warranty.  The  standard  warranty   that  the   phone   comes   up   with   covers   only   minimal   functional   features   like   problems   with  display,   headphone   jack   etc.   The   following   table   provides   complete   information   on  warranties  provided  by  standard  and  famous  handset  manufacturers:  

Table  2|  Extended  warranty  in  smart  phones  |  Source:  Android  authority,  company  websites  and  retailers  

Brand   Extended  Warranty  Available?  

Extended  Warranty  Cost  

HTC   No   N.A  Samsung   No   N.A  

LG   No   N.A  Huawei   No   N.A  

4  |  C C S :   W a r r a n t y   a n d   C o n s u m e r   B e h a v i o u r    

Apple   Yes   INR  2,400  Sony   No   N.A  

 

As   is  evident   from  the  table  above  that  warranty  market  has  not  yet  developed   in  mobile  phones   industry.   It   is   a   point   of   parity   in   the   industry   to   provide   a   standard  warranty   of  twelve  months  which  is  just  less  than  the  useable  life  of  mobile  phone.  Except  Apple  none  of  the   manufacturers   currently   provide   extended   warranty   and   Apple   charges   a   healthy  premium  for  an  extended  warranty  of  one  year.  Later  part  of  the  report  tries  to  uncover  the  reasons  on  why  mobile  phone  manufacturers  unwillingness  to  provide  extended  warranty.  

 

5   QUALITATIVE  ANALYSIS  In   qualitative   analysis,   we   first   performed   focus   group   discussions.   From   the   insights  obtained,   a   sample   questionnaire   was   created   for   in-­‐depth   interview   and   following   that  seven   in-­‐depth   interviews   were   carried   out.   Primarily,   laddering   technique   was   used   to  understand  the  consumer  behaviour,  i.e.,  a  series  of  Why?  questions  were  used  to  uncover  deeper  insights  about  perception  and  ease  of  use  of  warranty.  Based  on  the  key  insights  we  were   able   to   a   form  a   hypothesis   regarding   the   stage  of   said   industry   in   the   industry   life  cycle  curve  vs  the  importance  of  warranty  as  a  point  of  differentiation.  This  is  discussed  in  detail  in  section  7.  

The  key  insights  achieved  from  the  in-­‐depth  interviews  are  as  follows:    

5.1   Laptop  vs  Mobile  The   interviewees   were   more   willing   to   take   extended   warranties   in   the   case   of   laptop  purchase,  only   a   small   proportion  wanted  an  extended  warranty   in   case  of  mobile  phone  purchase.   The   major   reason   that   came   out   for   this   behaviour   after   we   followed   the  laddering   technique   was   that   “people   believed   that   mobile   phones   are   a   short   term  investment   (1-­‐2   years),   so   a   warranty   was   not   required   in   that   case”.   At   the   same   time  laptops  on  the  other  hand  were  a  long  term  investment  (3-­‐5  years),  so  warranty  becomes  a  necessary  aspect.  

 

5.2   Risk  Hedging  Most  of  the  candidates  told  that  they  take  extended  warranty   in  case  of   laptops  to  hedge  their   risk   as   laptops   are   a   bigger   investment   as   compared   to  mobile   phones   (in   terms   of  purchase  price)   for   them.  So,   to  hedge   their  product   failure   risk   they  were  willing   to   take  extended  warranties  in  case  of  higher  ticket  item  i.e.  laptop.  

 

5.3   Ease  of  Service  &  Service  Quality  Interviewees   had   negative   stereotypes   for   the   service   quality   provided   by   mobile   phone  companies  when  the  product  failed  during  the  warranty  period.  Also,  it  was  a  tedious  task  

5  |  C C S :   W a r r a n t y   a n d   C o n s u m e r   B e h a v i o u r    

to  take  mobile  phone  to  the  service  centre  and  spend  2-­‐3  days  without  any  mobile  phone.  At  the  same  time  people  had  a  positive  perception  for  service  quality  they  received  for  the  laptops  also  one  of  the  major  feature  that  people  mentioned  about  warranty  of  laptops  was  “the   doorstep”   service.   So,   ease   of   service   of   warranty   in   the   case   of   laptops  was  much  more  as  compared  to  that  in  mobile  phones.  

 

5.4   Repair  Cost  Interviewees   had   a   built   in   expectation   through   prior   experience   in   their  minds   that   the  repair  cost  of  laptops  was  higher  than  that  of  mobile  phones  so  to  protect  themselves  from  future  spending  they  were  willing  to  take  extended  warranty  in  the  case  of  mobile  phones.  At   the   same   time,   they  were   reluctant   to   purchase   an   extended  warranty   in   the   case   of  mobile   phone   because   of   their   pre   conceived   notion   of   higher   repair   cost   in   the   case   of  mobile  phones.  

 

5.5   Hidden  Costs  Through  prior  experiences,  few  interviewees  had  a  perception  that  there  are  a  lot  of  hidden  costs  and  many  unknown  clauses  in  the  warranty  that  is  purchased  on  mobile  whereas  the  same  is  not  true  in  the  case  of  laptops.  Two  candidates  experienced  that  even  after  taking  a  warranty   on   the  mobile   phone   they   had   to   pay   some   amount  while   claiming   a  warranty,  since  that  damage  was  not  covered  under  the  warranty  clause.  

 

5.6   Warranty  Purchase  Rationale  One   of   the   important   insight   that   we   got   from   conducting   in-­‐depth   interview   was   the  answer   to   question,   “What   is   the   thinking   process   that   people   adopt   while   making   a  purchase  decision  for  warranty   (for  any  product)”,   laddering  technique  was  applied  to  get  warranty  rationale  from  the  candidates.  The  relevant  factors  were:  

•   Total   Useable   Life   of   the   product   i.e.   if   extended   warranty   timeline   falls   between  useable  life  of  the  product  people  have  a  higher  probability  to  opt  for  warranty.  

•   People   internally   try   to  maximize   their   utility   i.e.   they   try   to   compare  actual   repair  cost  without  warranty  and  the  price  they  have  to  pay  for  purchasing  warranty.  

•   Like  mentioned  earlier  people  give  good  amount  of  importance  to  ease  of  claiming  a  warranty  for  e.g.  on  site  warranty  increases  the  probability  of  buying  warranty.  

 

6   Key  hypothesis  As   discussed   above,   we   used   the   qualitative   insights   to   form   our   hypothesis   around  consumer’s   behaviour   around   warranty.   We   hypothesize   that   the   level   of   industry’s  maturity,   i.e.,   it’s   position   of   industry   life   cycle,   is   an   important   determinant   of   the  importance   of   warranty   as   a   point   of   differentiation.   This   is   more   important   in   rapidly  

6  |  C C S :   W a r r a n t y   a n d   C o n s u m e r   B e h a v i o u r    

evolving  and  fast  paced  industries  such  as  electronics.  Also,  we  hypothesize  that  the  relation  between   the   two   is   directly   proportional,   i.e.,   higher   the  maturity   of   industry   higher   the  importance  of  warranty  as  POD.    

 

6.1   Qualitative  reasoning  This  is  because  in  a  fast  paced,  rapidly  evolving  industry,  a  firm  has  to  invest  extraordinary  amounts   in   R&D   towards   building   a   better   offering.   Hence,   the   key   proposition   that   the  firms  offer  are  centred  around  innovation  and  superior  offerings.  Also,  at  this  juncture  it  is  very  costly   from  the   firm’s  point  of  view  to  create  an  effective  and  efficient  warranty  and  repair   infrastructure.   Not   only   it   involves   keeping   an   inventory   of   rapidly   phasing   out  components   but   it   also   involves   re-­‐training   the   manpower   with   each   new   innovation.  However,   as   the   industry   matures,   the   pace   of   innovation   comes   down,   components  become   more   and   more   modular   (easy   replicability   and   high   legacy   compatibility)   and  standardized   (many   vendors)   and   innovation   related   changes   at   all   levels   –   architectural,  platform   and   product   are   mere   incremental.   It   thus   becomes   cost   effective   to   provide  warranty   and   the   firm   that   builds   its   proposition   around   an   effective   and   efficient   value  chain  for  warranty  wins  a  higher  market  share.  This  phenomenon  is  visible  in  various  mature  durables  industries,  such  as  passenger  vehicles  (not  considering  autonomous  cars),  laptops,  furniture  etc.    

 

 

 

 

 

 

 

 

 

 

 

 

We  conducted  a  qualitative  survey  in  order  to  further  understand  the  consumer  behaviour  and  explore  this  hypothesis.  

 

Figure  1:  Warranty  and  Product  Life  Cycle  

Warranty  as  POD  

Providing  warranty  costly  

7  |  C C S :   W a r r a n t y   a n d   C o n s u m e r   B e h a v i o u r    

7   QUANTITATIVE  ANALYSIS  7.1   Structure  of  survey  The  survey  was  designed  to  capture  differences  in  consumer  behaviour  for  warranty  for  only  two   products:   laptops   and   smart   phones.   These   two   are   chosen   as   they   are   sufficiently  distant  on  the  industry   life  cycle  and  have  different  warranty  related  behaviour  as  per  our  focused  interviews.  We  also  suggest  that  different  products  such  as  cars,  luggage  (suitcases)  and   CFL   lights   should   also   be   considered   to   provide   an   extensive   understanding   of  hypothesized  problem.    

 

7.2   Survey  participants  The   survey   was   floated   among   the   students   of   IIM   Bangalore   as   almost   all   of   them   use  laptop   and   smart   phone   and   are   the   decision   makers/primary   influencers   during   their  purchase   of   these   devices.   In   total   42   participants   responded.   We   did   not   perform   any  demographic  analysis  as  the  sample  are  assumed  to  coming  from  homogenous  population  (IIM  students).  

 

7.3   Survey  questions  The  survey  questionnaire  is  available  in  appendix  1  

 

7.4   Survey  analysis  methodology  The  argument  we  present  is  that  if  the  survey  suggests  that  warranty  contributes  to  utility  of  laptops  but  not  of  smart  phones,  it  can  be  inferred  that  warranty  plays  less  role  in  a  growing  industry  than  a  matured  industry.  To  achieve  this,  we  ask  the  respondents  to  rate  the  level  of   satisfaction   from   their   last   laptop   and   mobile   purchases   (this   acts   as   proxy   for  satisfaction)   and   ask   them   for   the   determinants   of   their   purchase   decisions   –   broadly  physical  hardware  specifications,  looks  and  design,  price  and  warranty  level.  We  present  the  results  in  next  section  

Next,   the   survey   asks   the   respondents   to   rate   if   they   will   prefer   purchasing   extended  warranty  in  laptops,  if  yes  than  why.  Similarly,  the  survey  asks  the  respondents  to  rate  why  they  won’t   like   to  purchase  extended  warranty   in  mobile  phones.  With   these  we  wish   to  identify   the   determinants   of   warranty   decisions   for   consumers.   Results   are   presented   in  next  section.  

 

 

 

 

8  |  C C S :   W a r r a n t y   a n d   C o n s u m e r   B e h a v i o u r    

7.5   Survey  results  Question   1.     Which   product   has  LOWER  usable   life?  (Usable   Life:    the   time   you   use   the   product   before  changing  it)  

Answer   1.   The   survey   respondents   unanimously  responded   that   mobiles   have   lower   usable   life.   The  sample   statistics   are   summarized   below   in   table   3.  Also   the   average   usable   life   for   laptops   and  mobiles  

are  significantly  different  as  presented  in  table  3.    

 

Question   2.   The   two   questions   asking   for   satisfaction   from   laptop   and   determinants   of  purchase   decision   were   regressed   with   satisfaction   as   the   dependent   variable   and  independent  variables  as  hardware  specifications,  looks  and  feel,  warranty  period  and  price.    

Answer  3.  The  result  are  as  follows  in  table  4.  

From  the  regression,  the  equation  of  linear  regression  was:  

Regression  Equation:  Total_satisfaction  =  0.9  +  0.6  Hardware  +  0.2  Warranty  +  0.3  Looks  +  e  

So,  if  we  take  our  level  of  significance  as  10%  then  we  can  clearly  see  that  Hardware  Specifications  (p-­‐value  =  0),  Warranty  (p-­‐value  =  7.8%)  and  Looks  &  Design  (p-­‐value  =  3.9%)  are  the  only  significant  factors  of  regression  whereas  surprisingly  price  came  out  to  be  a  non-­‐significant  factor  in  regression.

Figure  2  |  Usable  life  comparison    

 

Table  3  |  Usable  life  mean  comparison  through  2  sample  t  test  

9  |  C C S :   W a r r a n t y   a n d   C o n s u m e r   B e h a v i o u r    

Hence  we  can  see  that  warranty  is  a  utility  determinant  for  laptops.    

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Table  4  |Regression  summary  for  laptops  

10  |  C C S :   W a r r a n t y   a n d   C o n s u m e r   B e h a v i o u r    

Question   3.   Similar   survey   questions   measuring   the   level   of   satisfaction   and   purchase  determinants  were  asked  for  mobile  phones.  

Answer  3.  The  answers  are  presented  in  table  5.  

The  coefficients  of  linear  regression  for  satisfaction  as  dependent  variable  and  purchase  determinants  as  independent  variables  is  as:  

Regression  Equation:  Total_satisfaction  =  1.9  +  0.72  Hardware  +  e  

The  only  significant  factor  that  came  out  of  this  regression  was  Hardware  Specifications  (p-­‐value   =   1.2%).   Again   for   this   analysis   we   have   taken   level   of   significance   as   10%.   The  insignificant   factors   are   Looks   and   Design,   Warranty   period   and   Price   of   the   phone.  Supporting  our  hypothesis   is  the  result  that  Warranty  period  is  a  highly  insignificant  factor  (p-­‐value  =  100%).  

Hence  warranty  is  not  a  utility  determinant  in  smart  phones.    

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Table  7|  Regression  Summary  

Table  5  |  Regression  analysis  for  smart  phones  

11  |  C C S :   W a r r a n t y   a n d   C o n s u m e r   B e h a v i o u r    

Question  4.  Rate  the  following  factors,  based  on  their  level  of  relevance  while  you  are  making  a  purchase  decision  for  laptop.  

Answer  4.  The  results  are  presented  in  table  6  

To  test  the  statistical  significance  of  each  factor,  a  t-­‐test  was  conducted  where  mean  value  was  taken  to  be  3  (Since,  the  responses  are  on  a  Likert  1-­‐5  scale).  The  test  was  conducted  on  all  the  factors  with  95%  Level  of  confidence  and  all  the  factors  came  out  to  be  statistically  significant   i.e.   the   mean   relevance   of   all   the   individual   factors   while   making   a   laptop  purchase   was   much   more   than   3.   Signifying   all   factors   were   relevant   to   customer   while  making  a  laptop  purchase.  

Result:   Statistical   Significant   Factors:   All   factors   statistically   have   more   relevance   than  mean.  

 

 

 

 

 

 

 

 

Question  5.  Rate  the  following  factors,  based  on  their  level  of  relevance  while  you  are  making  a  purchase  decision  for  smart  phone.  

Answer  5.  The  results  are  presented  in  table  7  

Again,  to  test  the  statistical  significance  of  each  factor,  a  t-­‐test  was  conducted  where  mean  value  was  taken  to  be  3  (Since,  the  responses  are  on  a  Likert  1-­‐5  scale).  The  test  was  

Table  7  |  Relevance  of  factors  (smart  phones)  

Table  6  |  Relevance  of  factors  (laptops)  

12  |  C C S :   W a r r a n t y   a n d   C o n s u m e r   B e h a v i o u r    

conducted  on  all  the  factors  with  95%  Level  of  confidence  and  all  the  factors  except  warranty  came  out  to  be  statistically  significant  i.e.  the  mean  relevance  of  all  the  individual  factors  barring  warranty  while  making  a  phone  purchase  was  much  more  than  3.  This  analysis  again  backs  a  part  of  our  hypothesis  that  warranty  is  not  a  relevant  factor  while  making  a  phone  purchase.  

Results:  Statistical  Significant  Factors:  Except  warranty  all  factors  are  statistically  more  relevant  than  mean.  

Question  6.  Will  you  purchase  extended  warranty  for  laptops  and  smart  phones?  

Answer  6.  The  results  are  presented  in  figure  4.  

 

Almost  three-­‐fourth  of  the  respondents  claimed  that  they  will  purchase  extended  warranty  while  making  a  laptop  purchase  and  only  a  meagre  amount  of  8%  respondents  were  willing  to   take   an   extended  warranty  while  making   a  mobile   phone   purchase.   Again   backing   the  insights   that  we   got   from   in-­‐depth   interviews   that   since   useable   life   of   laptop   is  more   as  compared   to  phone  so  people   tend   to  buy  extended  warranty   in   that  case   to  hedge   their  risks.  

   

Figure  3|  Extended  Warranty  Decision  

Laptops   Smart  phones  

13  |  C C S :   W a r r a n t y   a n d   C o n s u m e r   B e h a v i o u r    

Question   7.   Rate   the   following   reasons   based   on   their   importance,   which   contribute   to  opting  for  extended  warranty  while  purchasing  laptop    

Answer  7.  After  getting  the  mean  score,  individual  hypothesis  tests  were  performed  on  each  variable  to  determine  if  it  is  statistically  different  from  a  null  score  of  3  (indifferent  score)  

The  results  are  presented  in  figure  5  and  hypothesis  tests  are  summarized  in  table  8    

 

Table  8  |  Hypothesis  testing  

Statistic  

Ease  of  service  (example-­‐  at  home  service)  

Initial  warranty  provided  by  company  is  much  less  than  my  usable  life.  Hence  I'll  purchase  extended  warranty  

Design  changes  and  hardware  upgrades  are  rare  in  the  industry  

This  is  a  costly  purchase.  I  want  to  protect  my  money  

Mean   3.68   3.82   2.75   3.96  

Standard  Deviation   1.12   1.09   1.04   0.79  

z  value   3.21   3.98   -­‐1.27   6.43  

p  value   0.00   0.00   0.22   0.00  

 

Hence   it   is   observed   that   ease   of   service,  warranty   –   usable   life   comparison   and  price   of  purchase  are  statistically  relevant  factors,  whereas  design  changes  and  hardware  upgrade  is  not.  This  is  expected  as  it  is  a  mature  industry  and  only  incremental  changes  are  observed  every  year.    

02468101214161820

Ease  of  service  (example-­‐ at  home  service)

Initial  warranty  provided  by  company  is  much  less  than  my  usable  life.  Hence  I'll  

purchase  extended  warranty

Design  changes  and  hardware  upgrades  are  rare  in  the  

industry

This  is  a  costly  purchase.  I  want  to  protect  my  money

Not  at  all  relevant Slightly  relevant Moderately  relevant Very  relevant Extremely  relevant

Figure  4|  Extended  Warranty  Reasons  

14  |  C C S :   W a r r a n t y   a n d   C o n s u m e r   B e h a v i o u r    

Question  8.  Rate  the  following  reasons  based  on  their  importance,  which  contribute  to  NOT  opting  for  extended  warranty  while  purchasing  mobile.    

Answer  8.  After  getting  the  mean  score,  individual  hypothesis  tests  are  performed  on  each  variable  to  determine  if  it  is  statistically  different  (higher)  from  a  null  score  of  3  (indifferent  score).  

The  results  are  presented  in  figure  6  and  hypothesis  tests  are  summarized  in  table  9  

Table  9  |  Hypothesis  testing  

Statistic  Initial  Warranty  same  as  useable  life   Lots  of  hidden  costs  

Less  ease  of  service  

Performance  degradation  after  repair  

Mean   3.79   3.53   3.41   3.24  

Standard  Deviation   1.01   1.13   1.18   1.05  

z  value   4.56   2.73   2.03   1.33  

p  value   0.00   0.01   0.05   0.20  

 

The  only   significant   factor   that   is   statistically  higher   than   the   indifferent  value  of  3   is   that  factor  1  which  means   that  majority  of   the  people  don’t  buy  an  extended  warranty   in   the  case  of  mobile  phones  because  the  perceived  value  of  warranty   in  such  a  case   is  very   low  and  people  feel  that  the  initial  warranty  that  comes  with  the  gadget  purchase  is  equal  to  the  useable  life  of  the  mobile  phone  so  there  is  no  need  to  buy  an  extended  warranty.  

 

Figure  5|  No  Extended  Warranty  in  Phones  

0

2

4

6

8

10

12

14

16

Initial  warranty  is  almost  same  as  my  usable  life.  Hence  I  don't  need  extra  warranty

Lot  of  hidden  costs  as  a  part  of  extended  warranty  so  I  end  

up  paying  for  damages  despite  taking  warranty

Less  ease  of  service  (example  -­‐ no  at  home  warranty  

concept)

Performance  degrades  after  repair  takes  place  i.e.  phone  

has  low  repairability

Not  at  all  relevant Slightly  relevant Moderately  relevant Very  relevant Extremely  relevant

15  |  C C S :   W a r r a n t y   a n d   C o n s u m e r   B e h a v i o u r    

8   Conclusion  With  our  preliminary   study   it   is   indicative   that   there   is   a   correlation  between  maturity  of  industry  and  importance  of  warranty.  Also,  it  can  be  inferred  that  the  utility  achieved  from  warranty   can   be   replaced   by   other   value   proposition,   of   which,   innovation   and   higher  functional  offerings  are  being  employed  by  smart  phone  manufacturers  right  now.    

We   believe   that   currently,   a   smart   phone   manufacturer   cannot   create   a   point   of  differentiation   out   of   warranty   due   to   its   prohibitive   cost   and   instead   should   focus   on  improving  the  offering  by  investing  the  same  amount  in  R&D.  Currently,  the  standardization  of  parts   is  also  not   taking  place   in  smart  phone   industry  suggesting  that  supplier  power   is  still  high  in  this  industry.    

We   believe   that   over   time,   as   the   industry  matures,   it  will   follow   a   template   followed   in  laptop  industry  (or  for  any  durable  industry  for  that  matter)  and  the  importance  of  warranty  as  a  differentiator  will  go  up.  

 

9   Way  forward    We  wish  to  explore  this  topic  further  and  build  a  model  for  all  stages  of  industry  life  cycle.  Intuition  says  that   in   inception/introduction  phase  of   industry,  warranty  play  an  important  role  in  bringing  customer  trial  cost  and  perceived  risks  down  and  hence  assist  in  customer  acquisition.  We  wish  to  formally  study  the  subject  in  greater  detail.  

We  also  want  to  substantiate  our  current  hypothesis  by  conducting  secondary  field  research  and  industry  expert  interviews.  If  we  are  able  to  predict  warranty  importance  with  a  model,  it’ll   also   help   us   in   our   future  professional   endeavours   as  managers   and  will   help   us   take  better  decisions  regarding  customer  warranty.    

 

 

 

 

 

 

 

 

 

 

   

16  |  C C S :   W a r r a n t y   a n d   C o n s u m e r   B e h a v i o u r    

Appendix  1  (Questionnaire)    

 

17  |  C C S :   W a r r a n t y   a n d   C o n s u m e r   B e h a v i o u r    

 

 

 

18  |  C C S :   W a r r a n t y   a n d   C o n s u m e r   B e h a v i o u r    

 

 

 

 

19  |  C C S :   W a r r a n t y   a n d   C o n s u m e r   B e h a v i o u r