Tiffany Serbus-Gustaveson  0:18  

Happy Wednesday everybody. I am Tiffany Serbus-Gustaveson, a digital strategist with BWG Connect, and we are a network and knowledge-sharing group. We stay on top of the latest trends, challenges, and whatever is shaping the digital landscape, we want to know and talk about it. We're on track to do at least 100 in-person dinners and over 500 virtual webinars. So for the in-person dinners if you happen to be in a tier-one city, feel free to shoot us an email, we'd love to send you an invite. The dinners are typically 15 to 20 people having a discussion around a certain digital topic, and it's always a fantastic time. We spend the majority of our time talking and brands, that's how we stay on top of the latest trends and challenges in the market. We'd love to have a conversation with you. Again, feel free to drop me a line at Tiffany@bwgconnect.com. And we can get some time on the calendar. It's from these conversations we generate the topic ideas we know people want to know about. And it's also where we gain our resident experts, such as Extend, who is with us today. And the way that we asked to teach the collective community has come highly recommended from multiple brands within our network. So if you ever need any recommendations within the digital space, please don't hesitate to reach out. We have a shortlist of the best of the best. We'd love to get that information to you. Also note if you have any hiring needs we do partner with a talent agency, Hawkeye Search, formally BWG Talent, that we can put you in contact with as well. A few housekeeping items. First and foremost, we want this to be a fun educational conversation. I'll drop as many questions comments you have in the q&a bar, the chat, or if you feel more comfortable, you can email me at Tiffany@bwgconnect.com. And we will get to them and this is a 30-minute webinar. So we're gonna be moving a little fast. And we will formally wrap up at the 30 minute mark. So with that, let's roll and talk about how extended warranties are driving profit growth in an uncertain retail environments. The team at Extend have been awesome friends and partners in the network. So I'm gonna kick it over to you, Rohan, if you can give a brief introduction on yourself and we can dive right in.

Rohan Shah  2:11  

Thank you. Yeah, awesome. Appreciate it, Tiffany and thank you to you and the BWG team. You guys always throw great both virtual and in person events having been to both, so thank you for having me. Really quick introduction on myself. So I'm a repeat technology entrepreneur based in California, from the Bay Area but live in Los Angeles. Started a company in the HR tech space, actually right out of college that I then sold and then spent five years at BCG and their digital ventures group really where I got to see a lot of the problems that Fortune 500 companies, specifically retailers, sort of face. Over the last five years I started and Chief Revenue Officer at a company called Extend. Extend works with large and small brands and retailers to power modern what we call post-purchase offerings specifically focused around extended warranties and protection plans. Think AppleCare, as well as shipping protection coverage against lost, stolen, damaged packages, and removing a lot of that risk and objects for retailers. You know why we started the company? I guess that is maybe where I'll start right now. We sort of saw a proliferation of software services and tools for brands and retailers really focused around the top of funnel, thinking about customer acquisition, thinking about conversion and funnel optimization through eCommerce or buying flows. And we didn't really see much as it related to the post-purchase experience. So once you actually get a customer to convert, what happens? How are you driving profitability? How are you driving loyalty? And ultimately, how are you driving LTV, which is what we really look at as sort of a guiding light metric for retailers. And there wasn't much there, especially when you went below sort of that top 1% of retailers like WalMart, Amazon, Costco base, BestBuy, Wayfair, etc. Some fun stats I like to share with people, companies like Best Buy, do about 2% of their overall revenues from the sale of extended warranties, and that 2% of their revenue translates into 52% of their net income. So when you think about that, more than half of their profit margin comes from the sale of these services and post purchase services like extended warranties. And yet when we walked into a Best Buy, we would look at a iRobot vacuum JBL headphones sono speaker, and not one of those companies had an extended warranty on the direct to consumer website. So that was really the aha moment of identifying sort of a distribution problem in the industry, where the top 1% were getting access to things that the rest of the market really was underserved as it related to. And what we saw was that the customer experience was largely broken. I'm not sure if any of the attendees on the call today have ever bought an extended warranty. We look at AppleCare as sort of the gold standard of something that customers really trust and as a result, it gets incredibly high adoption in the market. The rest of the programs out there were relatively were actually pretty poor. Frankly, I didn't want to use a swear word. But that was the first thing. You saw CSAT scores hovering at around 15 on the 100-point scale, you saw seven to 10-day exp claim processes that customers had to go through, much of which was done, like by picking up the phone and calling a call center, when these are digitally native customers in most cases. And so really rebuilding and reimagining that customer experience around claims and sort of an insurance offering is another thing that we really pride ourselves on. Automated claims, you know, less than 90-second resolution, and then instant fulfillment on those. So those are really sort of our ethos and what we focus on in the market today and Extend.

Tiffany Serbus-Gustaveson  5:47  

That's awesome. And I was a director of eCommerce for 10 years. And it's so true that you put so much blood sweat and tears into getting the conversion. And then I always had to remind my team that like, the most important part is actually happening now when we ship and it gets there and they don't return it. And then they come back and reorder, you know, but that's not the fun, exciting part all the time. But it's a critical part of the process for growth and long-term.

Rohan Shah  6:16  

Profitability. Absolutely.

Tiffany Serbus-Gustaveson  6:18  

So awesome. So with all the conversations we have, and there's obviously a lot of change happening in technology in the digital space, there's a lot of challenges in the general market overall. And how are you seeing from your lens with the brand's clients that you have? You know, how are they incorporating this world of okay, post-purchase the idea of an extended warranty and bringing that into the mix during these uncertain times in the retail environment?

Rohan Shah  6:46  

Yeah, you know, I mean, I'll start with just like what I see as some of the key problems. We don't even have enough time to talk about all the problems I see retailers facing and brands facing today. But some of the key ones that really stand out to me, you know, first is customer acquisition costs have skyrocketed. With the iOS changes, and so many things happening in terms of the dynamics in the market. It's just more expensive to get a customer to your website or to your store today than it was two years ago. And I think that's really everyone facing issues like that. The second thing you really see is cash is not cheap anymore. So raising capital for a lot of brands, which was sort of their lifeblood, software companies as well really dissipated in the last 18 to 24 months. So balance sheet strength and understanding cash flow dynamics, and ultimately, profitability is extremely tough and even tougher today, you know, you're looking at the supply chain and inventory issues that are continuing to really plague the industry as well, post COVID. So many of our partners were sitting on so much product, and they were like, how do we get this off our shelves now? I won't name any specifically, but some of them were definitely in the news quite a bit around that in the exercise equipment space, who we work with as well. So you know, inventory issues, supply chain issues. Luckily, the deal with UPS just finally got struck, but like, people were worried about holiday sales, how are we going to get products to customers? Will they get to customers? So a lot of these things are really driving up ultimately just cost for these brands. And I think the shift in focus over the last 18 to 24 months that we've seen is people moving away from growth at all costs to really understanding things like, what is our full lifecycle unit economics? And how do we make sure that we have really healthy unit economics, both through the transaction flows, but also after the sale itself, are a high percentage of customers returning products, we see some retailers that have 45-50 % returns, which is just crazy. that half the sales that you make the product come back to your warehouse. 

Tiffany Serbus-Gustaveson  8:54  

So these happen more in apparel, or do you see other verticals?

Rohan Shah  8:57  

I would say yeah, apparel is definitely the highest vertical as it relates to that. It's also the area where there's probably the most flexible or generous return policies for customers because there's just so much choice. And it's been a way to differentiate over time. You know, free shipping is another one that people are looking at right now we see a lot of retailers can reconsider the sort of free shipping policies that they've had for many years now. So those types of issues, when you sort of bundle them together all just lead to a shift away from sort of growth and really focused towards profitability. And I think that that focus on profitability has pushed the needle away from just looking at the top of the funnel and really looking at the bottom of the funnel and like what are we doing for our customers? The way I look at it is like, what pain points do our customers have after they click buy? One could possibly go wrong for them around experiences related to that product, whether it's once they have it in their hand and using it or during delivery itself where there's a ton of issues that can sort of plague that cause From our experience, so those are some of the issues that we really see. Now there's a ton of strategies people can take, as it relates to that we see a lot of folks taking the opportunity to sort of revamp IT systems right now and set things up for more flexibility to incorporate new services and add ons and functionality into their tech stack. We're seeing folks really drill into what the post-purchase cost serious returns being a big one, shipping issues, you know, lost packages, stolen packages. I live here in LA and I have delivery anxiety. So like, as soon as I get a notification that a package has been delivered, I run to my doorstep and grab it so that someone doesn't follow that UPS truck and grab it themselves. So these types of issues occur, and they're ultimately falling on the retailers to solve them. And that's where, you know, extending one of those solutions. But there's plenty of other companies out there as well, really trying to solve these issues for retailers and make it easy for them to deliver a great customer experience. And in many cases at the right cost or with driving incremental revenue as well.

Tiffany Serbus-Gustaveson  11:07  

Absolutely. And billing, like you said, the AppleCare that’s trust, and we all for most of us do that AppleCare, because we trust that experience as well. We trust the brand, but then we trust that it's going to be seamless, like okay, I don't want to think about my new phone being stolen, but it may happen. And I know if it does? Like this is going to be an easy process. And I think that's what has led others in the past. Like if I bought a new vacuum, the idea of like, oh gosh, I don't want to think about having to go through it, like figure out the part for my Dyson or whatever. It just feels icky at a time when you're excited about a new purchase, and you'll deal with that later. Let's cross our fingers.

Rohan Shah  11:45  

That's exactly right. You know,  I asked a lot of people on our sales calls, like do you buy extended warranties? And there'll be like, Oh, no, I never buy extended warranties, of course not. And then Alas, they buy Apple Care. And they're like, Well, of course I buy AppleCare, like who doesn't buy AppleCare? And so there's a paradigm and from a customer experience and trust perspective that really works. Now, cell phones, obviously, I'm carrying it around all day, and I'm dropping it six times a day. So I get the pain point. But you look at air pods, you look at, you know, tablets, you look at headphones, you look at all these different products they have, and they have such high customer adoption with Apple Care. And it boils down to trust. Do people trust that they're gonna get the value that they're paying for? And if they are that convenience factor for someone who's lucky like myself, where I can buy another pair of air pods, if mine breaks, I still buy AppleCare, because I like the convenience. I like to don't have to think about it. So it's different for different customer segments and different individuals. But there is a paradigm and examples in the market are this really working? And guess what? It's their most profitable line item from a product perspective or a sales perspective? It's the highest-margin product in their entire business.

Tiffany Serbus-Gustaveson  12:51  

 Yeah, so this post-purchase is like the margin profitability side, the curious to like the dynamics of the team and the departments like the stakeholders that are involved in the process, because what traditionally has been kind of everybody stayed in their lane siloed. You know, everybody is siloed in their own way, logistics or quality was, you know, QC was dealing with the returns, still sales and marketing? And we're not talking about that. But have you seen like if holistically brings teams and organizations together? Because you're looking at it -- full lifecycle? 

Rohan Shah  13:28  

I think you describe the ideal state very well, I don't know if everyone's sort of wrangled the ability to connect all the dots across disparate teams with large retailers. You know, with many of the folks we talked to very mature, very smart organizations. They don't really have full reporting across the full lifecycle. They don't fully understand who are the customer segments or demographics that were targeting the funnel. And how do those sorts of cohorts translate into different cost profiles on the back end, different cohorts of customers demonstrate different behaviors that lead to higher rates of return. I'll give you an example that we see with our shipping protection product, which is younger demographics living in an urban areas deal with lost and stolen packages at a way higher frequency than someone living in a suburban neighborhood in Kentucky. That's not surprising if you look at it that way. But that is cost basis that you need to start accounting for. And some retailers actually reserved revenue for as a result, right. So it's going down all the way to the P&Lin terms of how they're looking at it. These are dynamics that severely it's really hard to sort of cross functionally coordinate within a business. Some of the top folks that we work with in terms of folks that have the best understanding of their own businesses are really starting to look at it that way, in terms of let's bring together the teams that we have to understand like the full flow through from start to finish across that customer journey, and ultimately where we can do better but it's a work in progress. It takes time, right? Like these are not problems to solve. And there's extraneous factors that are outside of a brand and retailers control also, which is where we look at like risk as the product type being something that we can sort of step in and support on.

Tiffany Serbus-Gustaveson  15:17  

And that brings up like the shipping. So like carriers, yeah, the assumption is, oh, yeah, the carriers will take care of that. But that's not true. Like, so how, how does the solution that I'm bringing, that's the leg of the actual shipping protection side?

Rohan Shah  15:34  

Totally, I mean, like, let's look at what the experience looks like. Today, I'll use myself as an example, I'll order something on a brand's website, that product may get dropped off on my doorstep. We all know that lost packages are sort of a common thing today. Unfortunately, I think last year, 860 million packages in the United States were lost in transit, which is crazy just to think about in terms of the volume there. But let's say it gets on my doorstep, and someone swipes it off my doorstep, 260 million packages were stolen last year in the United States as well. These are all issues that like, ultimately, I as a customer, I'm going to call it a brand. That's something that I expect them to take care of me, take care for me, I'm sorry. And so I call them the brand that on the back end has to go to the carrier, it's a multi-step, multi-day manual process. So cost again, right? Op x as it relates to that. And in most cases, most brands and retailers are seeing 20-30% cost recovery across those issues. And it's not pure recovery, either because you have a human being or multiple human beings in the loop having to spend time and effort on it as well. And ultimately, what it leads to is a poor customer experience. I'm sitting here waiting for that claim to be adjudicated by the carrier with the brand, not knowing if I'm going to get a product that I purchased. So it just leads to a bad taste in my mouth, that may not lead me back to that retailer, most brands are going to send me a new package, whether it's at cost to themselves, or if they can recover it from the carrier. That's still not a great experience for me usually, because I have to go through the manual steps and process there. So that's where from our solution perspective, we step in, we turn it into a value added service. So white-glove experience customers are used to paying for this in the same way they are with extended warranties, convenience and white glove experience where in less than 60 to 90 seconds, you get your claim approved and a new product is being shipped out to you. And it relates back to the experience that the brand is providing for their customers. So shipping protection for us as a solution is very similar to an extended warranty just solving a different pain point across that sort of post purchase experience.

Tiffany Serbus-Gustaveson  17:44  

And is it with all carriers? 

Rohan Shah  17:47  

Yeah, we work with all carriers, including freight and LTL and things like that. He worked with retailers and brands that have package sizes of varying sort of scope.

Tiffany Serbus-Gustaveson  17:59  

Awesome, friendly reminder, questions, comments, put them into the q&a chat, and we will get to them. So we are looking at the holiday season coming up. It seems like this is the prime time to implement something during that season that is so crazy for us all. So what does implementation look like for a solution like this?

Rohan Shah  18:20  

Yeah, that's probably my favorite question. As a technology nerd myself. Implementation is often my biggest competitor, if I'm being honest, is prioritization. How do you get prioritized within a roadmap that is typically pretty packed with items and initiatives that folks want to work on? It's different for different brands and retailers is the simple baseline. It's not one consistent sort of process across any platform. With Shopify, it's super, super, super easy. We have a certified app there, have 15 Shopify developers on staff, we often do the integrations for our partners in sort of a demo environment, and then push it live once they're happy and ready for it. That's similar to some of the other eCommerce platforms as well, like Bigcommerce, Magento, and others. And then, when you start moving a bit more upmarket, into sort of the Salesforce commerce, clouds, as well as homegrown websites, or custom built websites, I would say it's on average, around 30 days, 30 days from end to end with full test. So it's not a flip of a switch. And anyone that sort of describes their platforms. There typically tends to bother me because it's just misleading. It does have work included, but it's typically one or two developers for, you know, four weeks or so from end to end to get it live. And so, you know, when I talked about at the beginning of the call, this is sort of the busy part of the year for us from a commercial perspective. It's really because if things don't get set up and sort of kicked off by the end of September, it's unlikely that they're going to go live prior to the holidays where folks are going to get the real value out of our solutions as well.

Tiffany Serbus-Gustaveson  19:58  

Yeah, totally makes sense. Got a question here.  How do you protect against fraud within this 60/92? Solution? Great question.

Rohan Shah  20:08  

Fantastic question. And there's no perfect answer to this question, as you probably can guess, we do a couple of different things from a fraud perspective. So first off, we have over 10 million different customers across the United States and Canada today, who are buying insurance offerings from us across our extended warranty and shipping protection solutions. So we ourselves have a fraud model, different from sort of a credit card fraud model, which is different. This is really around a consumer behavior fraud model, where we actually identify certain consumers that file claims at a clip that's higher than what you would expect from the sort of long-standing actuarial and historical data. So that's sort of the first flag. Our goal is to take care of customers who are having a problem as quickly as possible. If we start to see fraud, we actually build some elements of fraud into our underwriting models as well. So it's called moral hazard in the insurance space. So there's an expectation that there will be moral hazard. And that is accounted for in the pricing of these programs. The other area that we look at fraud is you know, PayPal is a large investor of ours. So we have spent a lot of time with them understanding different types of fraud across different categories, verticals, and merchant segments, as well. So we do a lot to mitigate fraud. Of course, no one wants to be eating some of that cost from a fraud perspective, the reality is it does happen. And you know, it's not a perfect solution. In all cases, our goal is always to just make sure that we're taking care of customers that are having an issue. And then looking at the overall loss ratios what we call them on the back end, in terms of cost out for claims. But ultimately, you know, we want to remove that risk from our retailers' books. So like that fraud is now shouldered and consumed by Extend as the risk taker and carrier, if you will, we're a technology company, but we have capabilities on the insurance side. We take that on so that our retailers and brands don't have to. So it takes what is typically a variable cost profile around these issues for brands, and really flattens it out across the portions of their business where this is applicable.

Tiffany Serbus-Gustaveson  22:15  

Hey, that is major for a P&L, because I remember you have in that bucket all of a sudden, Whoa, where did that expense come from? And accounting and processing all of these returns at once. And yeah, so curious, like the C-suite, or like board members? Like how are they viewing this type of solution? Because now you're no longer talking about like, oh, nice to have add-on widget to our site, this is like, big time impact on the P&L? 

Rohan Shah  22:39  

Yeah, it is, you know, our best-performing offerings on the shipping protection side, which is I would say more of a cost savings tool than an incremental revenue driver, is typically saving anywhere from like 70 to 75% of all costs related to shipment issues today, for our best-performing brands and retailers on that end. So guess what that is a board and executive level conversation, all of a sudden, retailers doing, you know, billion dollars in sales are seeing 10 to $20 million in lost cost as it relates to these issues. So it's extremely, extremely high. And then you compound that with things like returns and more than add even more additional cost. So that is a board and executive level conversation with our extended warranty solution, I would say at the lower end, we drive around 2% additional revenue for our partners at the higher end, up to 8% of total revenues are accounted for by their extended warranty program. And in some cases, like I mentioned, with best bites, counting for over half of their profit and net income. So whether they, you know, want to spend a lot of time thinking about it or not. Luckily, we do for our partners. It is a massive line item on their P&L. And unfortunately, there hasn't been a lot of enhancements or improvements to either the merchant experience or the customer experience, because people know that you can't turn these programs off once they're on. They're just too profitable for you. 

Tiffany Serbus-Gustaveson  24:05  

Hey, that is funny enough. My second job out of college in the early 2000s was working at BestBuy.com. With people that had lost their package. So yes, I remember there was even back then it was wow, it was wild times. So selling electronics online. That is massive. Very cool. We're in the last couple of minutes here. Any questions, comments put into the Q&A or chat and we will get to them. I guess as we wrap up, you know, any final thoughts or Takeaways as people venture into the holiday season and look at this as an opportunity? 

Rohan Shah  24:40  

Yeah, look, I mean, my ask and I don't want to be overly salesy here. I know, people are super busy. If this is something that piques your interest, even at the slightest, we'd love to just share a little bit more on sort of what we do. You know, I say that because I mentioned around timelines like I know, we have sort of 45 days here towards the end of September, where People are really going to think about like, what can I jam in through the end of this year, that's going to make an impact on my overall number. And so we're happy to chat about that. If it's next year as well, that's fantastic. You know, we see the value of these programs are like compounding over time, because there is customer education that needs to happen through the checkout flow, how you merchandise it, how you communicate to customers around it, etcetera. So it's not just a flip of a switch and an app on Shopify that you want to set and forget it. There are ways to really improve the customer experience around these things. We take a lot of that on our shoulders, but we're happy to chat. We'd love to sort of hear about problems that you're having as well, because it just gets us smarter in the industry, some of the things that we can solve for our partners.

Tiffany Serbus-Gustaveson  25:41  

Beautiful. And we do have a question that came in. Do you perform any follow-up selling extended warranties if they don't get engagement initially at the point of sale? Maybe a phone call, email, or text?

Rohan Shah  25:53  

Absolutely, yeah, so we look at it as like post-purchase remarketing. So I'll give you a couple of examples with some of our partners, like take iRobot, who has like an app experience, we actually do embedded offers into the app experiences. So like immediately when you name your robot, if anyone here has an AI robot, it'll pop up an offer to buy an extended protection plan and coverage around that we do email remarketing and retargeting. We've done sort of paper, flyers, paper, snail mail type things. Direct Mail, I guess, is what you call it, remarketing as well. So we power a lot of that for our partners so that they don't have to, we can actually run it through our technology stack so that it's fully automated. I wouldn't say it's the highest attach rates. That's not where we see the most amount of customers opting in the point of sale is ultimately where you're going to make the most amount of money on these offerings. But it is a nice recurring sort of waterfall revenue stream where customers, you know, immediately when I get the couch that's delivered to my house, and I'm looking at it now I'm thinking, oh my god, what if my dog jumps on it and their paws get dirty? What am I going to do? And so those moments of interaction with the product is where we try to target customers and get them to then to opt in after the point of sale.

Tiffany Serbus-Gustaveson  27:06  

Awesome. Well, Rohan, thank you so much for the time, the intel is always fantastic. Thank you for being a supporter with the BWG Connect community. And thank you all for joining today. We definitely encourage follow-up conversations with the Extend team to gear you up for the holiday season. And we'd love to have a conversation with you. That's how we get the topics for our future events. So feel free to drop me a line at Tiffany@bwgconnect.com. Thank you all so much. Have a lovely Wednesday and that weekend that's coming up soon. So take care. Rohan, nice to talk to you again.

Rohan Shah  27:37  

Appreciate it, everyone. Appreciate you guys joining. Thank you.