In Figure 5, we segmented the 320 service contracts based on their coverage duration. No one-year contracts have been found, probably because retailers and administrators are happy to leave this window of time for manufacturers to cover their product warranties. And since there are limited possibilities for sweeteners to deal (paying for spoiled food, paying for cosmetic damage, etc.), no one has sold policies that simply cross-reference the product`s warranties. The average price of the refrigeration service contracts we found was just over 16% of the product price, but as we`ll show, there are many ways to cut that one metric and roll dice. Without looking at the properties of the refrigerators themselves (ice makers or not, door configuration, color, etc.), we found several things true. First, the brand did not play as important a role as the price of the unit or the duration of the service contract. We would point out that there was no significant difference between the quality, reliability or cost of operating the brands, or at least they were not expressed in the price of the service contracts. This may explain why the lowest price for a refrigerator service contract was $80 short for, or why the highest price at Home Depot was $250. The calculated costs and the probability of a claim impose both a floor and a ceiling on what retailers can reasonably calculate for a service contract. The cost of a service contract is relatively higher for compact units, not because they are small, but because there is a floor, the cost of their repairs or their replacement costs. As mentioned above, the average refrigeration contract was valued at 16% of the price of the protected product. But there was a direct link between the length of the coverage and the cost of coverage.
This relationship is described in Figure 6. In general, the shorter the contract, the lower the price. In addition, the relationship is based on all the durations of the service contract. The cheapest models have always had the most expensive service contracts, whether the duration is two or ten years. And the most expensive units have always had the lowest protection prices, at least as a percentage of the price of the product. For example, the average price of two-year plans for refrigerators valued at $1,600, starting at $1.50, was only 5.4%. The average cost of five-year plans for units under $700 was more than 35%. In other words, if the price of a service contract for a unit valued at $800 is $100, that does not mean that the price of an $8,000 unit should be $1,000.
And that doesn`t mean the price of a $400 unit should be $50.