On today’s episode, Kunle is joined by Rohan Shah, Co-Founder of Extend, an API-first company that streamlines the development of extended warranties and product protection in the D2C eCommerce world.
As a consumer, it’s almost a godsend to have an extended warranty on our loved purchases, especially electronics and furniture when parts suddenly break. They have confidence in the merchant so it makes sense to purchase the warranty. Also, it’s a bargain price compared to the prices of repairs these days.
As an eCommerce merchant or retailer, should you consider adding extended warranties to your products? Maybe you should. Don’t waste your customers’ trust and give them what they are looking for, which are extended warranties and protection plans on your products. Extend is your willing partner in the journey.
Extend is an API-first company that democratizes extended warranty to any and every merchant, thereby, potentially increasing your average order value and conversions. They are your willing third party who stands behind your product that covers it from accidents and breaks.
In this episode, Kunle and Rohan talk about how warranties and protection plans are driving pure margin revenue to their bottom line. You will get to hear about when a brand should consider extended warranties. This is a great episode for merchants looking to grow their AOV with the use of extended warranties and product protection.
Here is a summary of some of the most important points made:
On today’s interview, Kunle and Rohan discuss:
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In this episode, we’re going to be talking about product protection and warranties in the world of eCommerce. It’s a great episode you don’t want to miss.
Welcome to the 2X eCommerce podcast. The 2X eCommerce podcast show is dedicated to digital commerce insights for retail and eCommerce teams. Each week, on this podcast, we interview either a commerce expert, a founder of a digital native commerce brand, or a representative from a best-in-class commerce SaaS product. Each with a tight remit to give you ideas that you can test right away on your brand. If you want to improve commerce growth metrics such as conversion, average order value, repeat customers, your audience size, and ultimately, sales, we’re here to help you sell more sustainably. That’s our remit
The episode you’re about to read is an interview I had with the Founder of a platform called Extend. What they do is streamline the deployment of extended warranties to the D2C world. He gave me a crazy statistic on Best Buy as to how 2% of top-line sales were coming from extended warranties, and 52% of top-line margin came from selling warranties. We talked about key verticals. This lends itself to in terms of the model and how to even increase potentially even conversions and average order value by having warranties to the products you sell on your site.
It was an interesting conversation I had. He’s full of knowledge and experience. He’s an ex-Stanford grad, he’s building a significant company. In their last race, they raised more than $350 million in venture capital, had a valuation of $1.6 billion in two years, and employed over 500 people. It’s quite a significant effort that they’re making but the interesting thing is they’re seeing this huge opportunity in D2C. They’re trying to give you the extended warranty opportunity from a tech perspective and also a financial perspective available to more listed companies to D2C companies.
It’s democratizing extended warranty to any and every merchant, thereby, potentially increasing your average order value and conversions if people are not sure if your products are going to break out. It’s a good conversation I had. All-round, he is a friendly lad. Enjoy the episode and I shall catch you on the other side. Cheers.
Rohan, it’s an absolute pleasure having you on the 2x eCommerce Podcast.
I’m appreciative of being here. Thank you.
Let’s go a bit back to your background. Do you mind telling us a little bit about you, where you grew up and what brought you to this heart of technology?
I grew up in the Bay Area near San Francisco so it’s in the heart of Silicon Valley. I’ve been around technology my entire life. I’m extremely lucky. I have two parents that were entrepreneurs themselves and started a business in the semiconductor space, which was the prime early technology days here in Silicon Valley. I grew up in the Bay Area and was lucky enough to go to Stanford as well. I was around a lot of smart, highly educated, and extremely ambitious technology entrepreneurs there and then started my first company directly at Stanford.
During my time there, I worked in a variety of different classes around entrepreneurship, product design, and business management. It got me so excited about the opportunity that was there for even younger folks like myself at the time to start a business. I started a company and raised some money. That company was in the HR tech space so quite different from what I’m doing now but it was an amazing learning experience. I got a ton out of it. I had an amazing team, some great investors, and some awesome customers also. I learned a lot about how to build and scale a business and made a ton of mistakes in the process, which further helps that learning process.
After that, I sold that and then went to a different company that was much larger and much more of an institution, which was Boston Consulting Group, which is one of the top three consulting firms in the world. It has an arm called Digital Ventures. At Digital Ventures, the mandate was quite different. It was to take the firm’s fortune 500 clients that they had and help them build new and innovative software products.
I ran a team of about 45 or 50 engineers, designers, and product managers. Our goal was to go in and build the software solutions. Like a consulting agency, as well as a Product Development Agency, we take them to market, but also help commercialize those new products for these companies. We would hire new teams that were focused on digital products when many of them weren’t accustomed to digital products. These were large banks, old school insurance companies, in many cases, materials manufacturers, or oil and gas businesses that hadn’t thought about technology innovation.
Candidly, we’re feeling the pressure because there were startups eating their lunch on a day-to-day basis. We would help them quickly and effectively take new products to market and it was there that I got to get a better insight into, “How do you build software and technology for the enterprise, not for SMB, and mid-market customers, but for full-scale large scale enterprise businesses as well?” That was a great experience that candidly led us to a lot of the thought processes that we had around starting this business and Extend.
I want to drill you on a question. How different is it building software solutions for an enterprise versus the SME market?
It’s amazing that platforms like Shopify, BigCommerce, and whatnot are around because it gives early-stage entrepreneurs a better platform to get started with their business and not have to worry, in many cases, about the technical build-outs, and they can focus on their products. What’s also fantastic for us, as a result, it’s a much more templatized process at the SMB. You know what the platform looks like, you know what the requirements are and you can build a simple app that facilitates what you want to do from a business value creation perspective.
At the enterprise level, it’s almost always custom. I don’t mean that the programs are custom. What I mean is their technology stack, in many cases, was built for them with external consultants, external agencies, and external developer teams. What that means is that we need to be flexible from a platform perspective, in order to facilitate integrations and activations at the enterprise level.
Candidly, that’s what that’s been where a lot of companies in our space have crashed and burned. They can’t figure out the retail technology stack for the large enterprises and they can’t get them to live in any meaningful or reasonable amount of time so it’s quite a different building for the enterprise. It’s much more hands-on and consultative.
Let’s talk about Extend. What is the value proposition for Extend? How did you ideate Extend? Right now, you’re 900 merchants strong, 6 million customers, and 6,000 plus stores so you have omnichannel footprints. With all of that, how did you spot the problem? When did you start Extend? Where are you now?
I like to joke with people that when I was five years old, I used to wake up thinking about extended warranties and protection plans. Unfortunately, that isn’t the case. Taking a step back working in the consulting world with these large enterprises, you realize that everything that they do is largely custom built and custom fashioned.
When working with large insurance companies, I also realized that they had a large portion of the market that they couldn’t address because they didn’t have technology that enabled better distribution to those businesses. That was across a variety of different kinds of insurance lines. As it relates to Extend specifically, we saw an opportunity.
We saw an opportunity where if you look at the top 1% of retailers like Amazon, Costco, Walmart, and Best Buy, they are offering extended warranties to their customers. Best Buy is a prime example that people here in the States usually think about when they think about extended warranties. These programs are incredibly profitable and drive an immense amount of business value. The fun stat that I love to share with people is Best Buy in 2018 did 2% of their top-line sales from extended warranties.
That 2% of their top-line sales translated into 52% of their overall profit. Think about that. 52% of the profit BestBuy generated in 2018 came from the sale of extended warranties. There’s an incredible amount of business value that can be driven through these programs and through these offerings. Yet, when you go and look at every one of those products that Best Buy’s selling JBL, Logitech, and iRobot, those brands were not offering extended warranties on their D2C websites.
That was an a-ha moment for us. Why wouldn’t they be taking advantage of this incredible business opportunity, especially when it’s clear that customers want these offerings around extended warranties otherwise Best Buy would not have a business selling them? We learned that it was a technology issue. It was a technology limitation. The legacy insurance carriers that hold the risk or underwrite these programs for extended warranties didn’t have the ability to integrate one-off with a wide set of merchants. What did they do? They focused on Best Buy.
Every three years they go through an RFP process and try to win more in Best Buy or Amazon or Costco or Walmart’s business. The rest of the market, the other 99% of retailers and brands were left unserved or what we call unattached. That was the moment when we realized there’s a model for building a business. It’s not black boxes but it simplifies the overall architecture needed to support a program or offering around an extended warranty, for example.
Think about companies like Stripe, Klarna, Affirm, and Afterpay. Affirm, Klarna, and Afterpay took what me and my friends called Layaway, and turned it into this sexy Buy Now Pay Later product that you would tell your friends about using. We’re doing the same thing for extended warranties and protection plans.
We’re an API-first solution that makes it easy for merchants and retailers to offer extended warranties and protection plans to their customers without any additional risk while driving a significant amount of business impact and pure margin revenue to their bottom line. It’s fully accretive from a revenue and margin perspective and Extend handles all of the touchpoints and customer claims aspects on the back end through our digital platform that handles claims. We have an over 93% CSAT score today so customers love the experience and love the value that they’re getting. Also, merchants can grow their businesses and continue to succeed in the market.
That’s a lot to take in. I wanted to visualize Extend from a customer perspective. When I see Klarna, I know it’s a payment option. From a shopping experience perspective, when does Extend start to present itself as an option? When do I start to consider an extended warranty? When I typically buy my Apple devices, it is certainly a consideration at checkout. There’s always that upsell of AppleCare. Not all brands have the same offering as Apple. As an API first solution, how have you guys figured out how to present extended warranties as something appealing to product purchases online?
You hit the nail on the head, which is there’s a modality that works for customers to protect the products that they love and use. AppleCare is candidly the best example of that in the market but you also made a good point. It’s not possible for every brand and every retailer to have an AppleCare-like experience. It’s difficult to build. Apple owns the supply chain. Apple owns the retail locations so they have a lot of business infrastructure to support that.
What Extend is, it’s AppleCare for everyone. It’s AppleCare for every brand and retailer out there that wants to offer a great service to their customers and we sell the product as such. That’s the first point. The second thing you touched on is how we get in front of merchants and retailers and make them excited about this. Most product companies and retailers sell things on Amazon. Many do at least.
If you go to Amazon and take a look, you will see an extended warranty offered on all of those products so the first thing I say is, “Another retailer is making money on extended warranties and by selling them on your products.” Wouldn’t you want to create a parity offering, an equal offering for your customers if they want the service? Not everyone buys extended warranties, I wish they did but not everyone will buy an extended warranty and that’s okay.
There are customers who want these offerings. Online, we see about 10% to 15% of customers buying extended warranties. Different product categories and price points will convert differently but around 10% to 15% is the average and so customers are demanding these offerings and services. With some of our partners, they served their customers and heard that they browsed on the brand’s website and then went to Amazon to buy it because they weren’t offered an extended warranty on the brand’s website.
They’re losing direct-to-consumer where they can build stronger relationships and have higher margins than these other retailers that are offering services. We believe that value-added services are a differentiator from a branding and CX perspective. That’s how we get in front of merchants and the last piece was around customer experience. How do we merchandise these to customers and where to funnel?
We have a suite of offerings for our merchant partners to effectively merchandise these to their customers. The first is on the product display page so the PDP. Oftentimes there, it’s an educational component of, “If you’re interested in buying this product, know that you can also get an extended warranty on it.”
When customers click Add to Cart, we also have a pop-up modal that presents a lot more information on fast and easy claims details about the coverage that the customer is getting. Accident protection, or breaks and spills, and the customer will be covered in those situations. We have a final offer as well on the cart page. It’s a last-ditch attempt if the customer hasn’t made a purchasing decision yet to add the extended warranty there. Not only are we seeing 10% to 15% of customers adding it to the cart and buying, but we’re also seeing pretty significant increases to purchase conversion because of the presence of an extended warranty.
One of our partners, BlendJet, if you’re not familiar with them, they’re a cool little portable blender device that you can take some fruits and veggies and make a little smoothie on the go. They saw an 11% increase to purchase conversion with the presence of the extended warranty. We tried to dig in and understand what it was and customers have more trust in a brand when a third party is willing to stand behind their product and cover it from breaks, accidents, and issues. There are a lot of interesting consumer psychology dynamics as well that we see within the purchase flows but ultimately, it’s purely a creative revenue and purely incremental revenue that we’re driving to the brand of the retailer.
I like what you guys are doing. You’re almost like an infrastructure from an extended warranty standpoint with the way your first two markets are dominating that space until you become a brand where it’s de facto. I have a question about verticals and retail is obviously huge. What verticals lend themselves best to extended warranties? Also, are you seeing average order thresholds for more considered purchases?
Using Apple’s analogy again, because the AirPods are so tiny, I will get an extended warranty for the AirPods but I won’t get it for a case. There’s no point for a phone case, but I will get it for the iPhone or a MacBook Pro. What kind of thresholds and what kind of product categories or verticals are you thriving and hitting that 15% attach rate for extended warranties?
There’s no doubt that price point plays a factor in someone’s decision-making. With that said, the first extended warranty we ever sold was on a $14 pair of headphones and it was not a shock but I was surprised that a customer wants to buy an extended warranty on a $14 pair of headphones. Why? It’s also because we price much more efficiently than traditional players in the space. For a $14 product, that extended warranty only costs $1.99, for example.
It’s on a relative basis priced to the products that retail value. At the low end of the AOV threshold, it becomes a “Why not” decision for the customer. “If something happens, I’ll be taken care of and it’s cheap.” With that said, performance is better at higher AOV thresholds. For $100-plus items, we see much better conversion. When you start getting into the top end of the market, we work with folks like Peloton, iRobot, and others, you’ll even see higher performance in those thresholds.
From a product categories perspective, we get this question a lot. The better question is, “What can’t you cover with an extended warranty?” They’re things like apparel and food and beverages. Consumables you can’t generally cover but you can cover a wide variety of things like electronics being something that people are super familiar with. Furniture and mattresses are a massive category for us. We work with many of the leading mattress and furniture companies here in North America, including folks like Nectar, Purple, Saatva, and as well as retailers like Z Gallerie and One Kings Lane.
Jewelry is a massive space for us. We work with both fashion jewelry companies as well as fine and engagement jewelry companies, including folks like Brilliant Earth, and others. Brilliant Earth is a massive online retailer of engagement rings and high-end jewelry. Other categories like glasses and sunglasses are a big area for us.
We work with advanced auto parts and we’re live in over 4,000 locations with them, as well as online retailers like JEGS and RealTruck that sell aftermarket and performance auto parts as well as wheels and tires. The list goes on. We could sit here all day talking about what we can cover. What’s awesome is sometimes people are surprised by how much we can cover and it’s also because we’re a vertically integrated company. Because we underwrite ourselves and we hold that balance sheet exposure, we can build programs that cover new and different product categories as well.
You can extend the use cases. The question I have is from the example you gave with the $14 headphones where it’s over $1. Does this warranty tend to be about 10% of the value of the total order of the product price? Do you have other ways of calculating what warranty or extended warranty they’re going to pay for?
It is dependent on the product category and the product vertical. That price point on average is about 10% to 15% of the product’s retail price. However, as you start going up in AOV, the extended warranty price point doesn’t match it linearly. When you start getting into $1,000 plus items, it’s not as effective to price things at that 15% of product retail and so that threshold will typically come down. Overall, what we see is online, we drive about a 2% to 2.5% top-line increase for the brands and retailers that we work with, which is pretty significant. A large portion of that is pure profit for the brand and retailer.
When you generate the funds, what happens to the funds? What does Extend keep and what do the merchants keep? Is there a share? Who keeps the monies?
The money is captured by the merchant. They’re taking payments and transactions from the customer and we don’t want to create a fragmented experience for those customers. It goes all through the eCommerce or retail sales channel and through their payment processor. As soon as they capture the funds on a monthly basis, we send the merchant an invoice for all the transactions with less of the merchant’s revenue share.
Every merchant that we have in our book takes a percentage of the total retail volume of extended warranties sold and that percentage is pure profit that goes straight to their bottom line. It’s because Extend holds all of the risk and performance obligations on that policy effectively and we handle all the claims on the back end.
What was the payout like in percentage terms? What’s the range, if there is a range?
It depends on what product we’re covering, for example, because the cost of the actual premium or the insurance if you will, despite it not exactly being insurance, looking at it like insurance, there’s a premium that we effectively hold and that is so that we can pay out claims. It depends on the product category. For example, cell phone coverage is quite expensive from a premium perspective because we carry it around everywhere and we drop it every single day, at least I know I do. It’s different based on different product categories. On average, merchants are taking about 40% of the total retail volume as pure profit that goes straight to their bottom line.
Not bad at all. What about the claim rate? I know this is nuanced and it depends on the industry or on category.
It also depends on coverage type. We have multiple different kinds of offerings that we have in the market today. For example, one will cover accidental damage and breakage so that’s me being an idiot and dropping my phone and cracking my screen. Accidental damage programs typically will have a slightly higher claim rate. Whereas we also have more traditional extended warranties. For the TV that’s sitting on the wall in my hotel room, there’s not a whole lot of accidental damage that a mounted TV is going to experience.
What you’re largely focused on is breakage from a mechanical or electrical perspective and so in those cases, we offer extended warranties, which are extensions of the manufacturer warranty that already covers that product. Overall, claim rates typically come in anywhere from 3% to 7%. That’s the benchmark that you can use so it’s not a massive volume of claims but it is a significant portion of customers who might have an issue and want to get taken care of and we enable that.
If you’re doing high AOV and you’re pumping a lot of transaction volume, you could hedge yourself against the potential of a claim, taking away profits, and in the long run, you’re more profitable.
Especially OEMs so brands themselves. A lot of those companies, when they make a sale, they’re reserving 2% to 3% of the transaction value on their back end from an accounting perspective in order to process and service claims that are going to come in. In many cases, we’re able to reduce some of that exposure and that risk and help them recognize more profit early on too, which from a financial perspective can support growth from a business side.
That makes a lot of sense. I want to cover conversion rate optimization from the lens of a CRO person. What are the conversion benefits of having an extended warranty, particularly to the categories and industries that lend themselves best to extended warranties?
At the end of the day, we’re offering customers peace of mind. Peace of mind that checkout is answering a question that they have around what happens if something goes wrong. Whether I’m buying a couch or an iRobot Roomba or a phone or a laptop, different product categories introduce different fears to a consumer. It’s like, “If I’m spending $200 or $500 or $1,500 on buying this product, what happens if something goes wrong with it?” The merchant enabling that customer to answer that question at the point of sale of, “I can be covered if I buy this extended warranty,” can dramatically increase conversion.
We have a case study published so I can share some of the data. We have this merchant that I mentioned called BlendJet that sees an 11% increase in purchase conversion with the presence of an extended warranty offer. Seeing a third party is willing to stand behind their product and cover it from accidental damage and breakage, gives customers more confidence to buy. There are some interesting consumer psychology and behavioral elements of extended warranties as well that can also be accretive to the rest of the business. That’s not something that we charge for from a conversion uplift perspective. It’s a byproduct of our solution.
I’m going to wrap up this conversation. For a mature OEM company doing direct-to-consumer in today’s world, what API-first solutions should be in this stack towards driving that piece of mind and conversions eventually for customers? Those extend but what other apps in this ecosystem are you impressed with and in helping direct-to-consumer eCommerce?
There are foundational elements of a technology stack for a brand or retailer. What people are noticing more and more these days, is if they want to turn on and test new solutions, not every solution will work for every business. That’s the reality but if they want the ability to test rapidly like software companies do or like we do all the time, you need to have a foundational tech stack that supports that. We see a number of OEMs, as well as retailers that live on extremely antiquated systems, whether it be ERP systems, order management systems, CRM systems, etc.
There are some foundational technology pieces that take time to implement properly and well but once you have that baseline, you can start to deploy new services to customers and test those rapidly which is ultimately where people need to get to run a successful business. That’s on the foundational and platform side. If you think about the funnel and the journey from a customer perspective, there’s a lot of stuff. With all the iOS changes, customer acquisition costs are going up pretty dramatically for a lot of brands and retailers.
From marketing spend perspective, how are they thinking about more targeted and more relevant ad campaigns? There are a number of companies out there doing that but it’s not a space that I’m super familiar with candidly but it’s something that I know a lot of our partners think about on a day-to-day basis. You have the actual eCommerce solution too. Depending on what type of products you sell, you may want to explore headless solutions that give you a little bit more flexibility and customization of what that customer experience looks like through the purchase funnel.
We talked about Buy Now Pay Later. It’s an amazing solution within certain segments for customers. We’re using a buy now pay later solution that can dramatically increase your conversion. I sometimes have questions on should someone be financing a $25 t-shirt but we’ll leave that for a separate conversation over a beer. One-Click Checkout is an area that people are excited about. I know the folks over at Bolt quite well. They’ve grown a lot. Also, the eCommerce platform itself too.
We work with Shopify. We’re a certified plus partner on Shopify. We work with BigCommerce. We’re an elite partner on BigCommerce. We have integrations with Magento, Salesforce, WooCommerce, and more. We have broad coverage because we want to serve merchants wherever they are but the platform that you’re working on is a pretty significant consideration as well.
I thoroughly enjoyed this conversation, Rohan. For those who want to find out more about Extend, it’s simply Extend.com. It’s a great domain name. Are you, yourself active on any social media platforms? People might say, “I like the way Rohan sounds and I’d like to follow him.” What social media platforms are you most active on that we link up to your socials?
I’m on LinkedIn. That’s probably where I’m most active. I would love for people to connect with me if they have questions they want to ask. They can easily ping me on LinkedIn. I’m also Rohan@Extend.com. If people want to send me an email if that’s easier, I’d be happy to do that. I’m not as active on Twitter as some people are. There is a lot of stuff going on so it’s a lot of noise these days.
LinkedIn and email would be fantastic if anyone has questions. We’re launching some new products that are exciting that I can share more information about directly. If people have more questions or whatnot, I would love to connect and chat with them. I appreciate you making time. I enjoyed chatting with you here on the podcast.
Thank you and we’re looking forward to you coming over to Europe and the UK at some point in the near future. Are you looking at 2023 or sometime in 2022?
The plan is 2023.
It’s great to connect. Thank you so much for coming on to the 2X eCommerce Podcast.
You’ve got it. Talk soon.