Why Casper Changed Extended Warranties And The Impact On Other Brands

Mattress company Casper was facing a dilemma.

According to Rachel Pedicini, VP of Ecommerce and Brand Marketing, Casper was founded to “make it easier to buy a big ticket item like a mattress.” But management believed its extended warranty program wasn’t making things easier, it was bureaucratic and it burned consumers’ time unnecessarily. That hurts loyalty, repeat purchases, consumer reviews and customer referrals.

To make matters worse, the most likely buyers of extended warranties at Casper are the highest-spending customers. Casper knew it was disappointing its most valuable customer base.

Going into this holiday season, Casper management believed it had to improve its extended warranty experience.

But what to do?

Why Now?

There is a real need for extended warranties. According to mobile phone trade-in service company SellCell, 10% of Americans have had their mobile phone stolen and double that for Americans traveling abroad. Almost 25% of Americans that have gone abroad have lost their phone while traveling (including me).

The way extended warranties work is often frustrating for consumers. The programs are mostly run or backstopped by insurance companies and take an insurer’s approach, requiring extended phone conversations, documentation and substantial processing time until consumers got satisfaction.

In the last decade, two things have happened to make a better extended warranty possible. First, processing technology developed to create software that can make judgments and communicate autonomously to accelerate and simplify the process.

Second, venture money became available in huge amounts to build startups.

A company called Extend has so far raised over $340 million in equity and has a value after its last round of fundraising exceeding $1.5 billion.

Extend uses technology to be, as Pedicini of Casper said, “the Casper of extended warranty.” It was created to get away from how extended warranty programs have been run and and make them more consumer-friendly.

Without increasing the cost to consumers or to Casper, Extend says that 98% of claims are processed in 90 seconds or less. Pedicini refers to it as removing the friction and making it seamless for Casper customers. Unlike most insurance companies, Extend starts with a focus on customer service and uses technology to speed up the process by engaging in chat and other electronic means to save consumers time.

Extend says 84% of customers say they would buy their extended warranty service again. The result is faster satisfaction for consumers without increased cost.

What’s Next

Extend is privately held and doesn’t report financial performance. Its last fundraising round was in February 2022 so if the company doesn’t raise more capital soon, it’s likely that it has reached cashflow positivity. That means there’s a real and sustainable business model here.

If that’s right, then the extended warranty business is going to change.

Casper’s competitors will have to act to improve their extended warranty customer experience. Other consumer companies will also have to change.

Its already happening. Extend’s customers include mattress company Nectar as well as IRobot (Roomba), Peloton, Brilliant Earth, Michael’s and others. If Extend’s business is financially sustainable, many more will follow.

It won’t happen fast. One of the learnings from the broad range of consumer-related startups we’ve seen in the last decade is that after they build their better product, it can take a long time for consumers to understand the benefit and switch. Time is expensive; supporting the marketing effort burns capital so it has to go slowly and get spread out over years.

Casper is leaning on customer reviews to increase its sales of extended warranties through Extend which should work because customer satisfaction with Extend is high.

The big volume items for extended warranties, like electronics, furniture and vehicles, haven’t switched over to this new system yet but if Casper’s use of Extend endures, it will mean that it’s better. All those other retailers and brands selling big-ticket items will have to make the switch over time.

Right now, Extend is the leader in the market and it’s possible competitors will emerge. But the longer competitors wait, the less likely that is. Not only because Extend will gain market share but because companies using artificial intelligence in their business, as Extend likely does, develop what engineers call a “data lake” that makes its artificial intelligence better every day. The more data they have, the better their software becomes and the harder it is for anyone else to catch up. The more the competition waits to get into the market, the less chance they will have to succeed.

That is what we are seeing in consumer-facing companies of all types now. Technology and capital are teaming up to improve products and services in ways that weren’t possible before.

You may be asking, why don’t existing companies do this instead of startups? They know the business and they have the capital. Good question.

Here’s another question: Why does Amazon
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exist? Sears was the largest U.S. retailer and had everything it needed to become what Amazon is today. Now Sears is out of business and Amazon has a value of more than $1.5 trillion.

There are fundamental changes going on in how consumer businesses operate that are not mere adjustments or approaches. Many legacy companies have not shown their ability to adapt to some of those changes which are not only technological but cultural, the kinds of changes that are the hardest to make.

That’s why Amazon is here and Sears isn’t. And that’s why Extend has a good chance for success.

Artificial intelligence particularly will cause more startups to develop into valuable companies that take the place of legacy providers. Extended warranties are one place where we are seeing that change and it will continue to impact other markets.