{{Unreferenced, date=May 2007 A service plan is a
contract A contract is a legally enforceable agreement between two or more parties that creates, defines, and governs mutual rights and obligations between them. A contract typically involves the transfer of goods, services, money, or a promise to tr ...
to purchasers of products for an additional fee. While service plans resemble extended warranties, there are several important differences between the two, often cited by retailers that sell them.

Differences from warranties

A service plan is a separate policy from the manufacturer's warranty. While the typical service plan does require preventative and routine maintenance to be taken in accordance with the manufacturer's warranty, it does not actually require a product to fail or malfunction under the same conditions. Service plans are also active from the date of purchase, unlike extended warranties, which become active when the manufacturer's warranty expires, meaning products can be purchased with service plans that is before or at the same time as the manufacturer's warranty. The key distinction is that a warranty strictly covers defects in workmanship and materials, while service plans cover product failure in general with a list of exclusions. While the exclusion list includes most situations that would disqualify a product from warranty coverage, there are things that fall outside the product's condition that aren't excluded, such as power surges. However, this is offset by the infrequency of covered conditions, and misinterpretation. For example, a lightning strike is considered an environmental cause, and consequently is excluded from most service plans, even if they claim power surge protection. To help differentiate from manufacturer's warranties, service plans occasionally come with additional benefits, such coverage for theft or accidental damage, replacements if a product fails a given number of times ("no lemon policy"), access to additional services, priority service and technical support.

Methods of service

Service plans vary in how an item is serviced. Some items may be serviced by the retailer's technicians, some may be sent out for repair, some may ship a replacement to the customer, some may be replaced by the retailer with a new item from the store inventory, or exchanged for store credit. Generally, if an item can be serviced in-store by the retailer, it will be. Some items like home theater equipment are repaired on-site with the retailer covering the cost. If the product can't be serviced by local technicians, then the items are sent to the manufacturer to be serviced. If the item is not serviceable or service is too expensive, the retailer will simply replace the product, or issue store credit for a newer model.


Whether an extended service plan is worth the extra cost depends on the item and the perceived value by the consumer. Basic service plans on desktop computers, for example, typically come close to the actual average repair cost of a system, with the retailer using the service plan as a way to keep the customer from going to a competing service center. Support options can be beneficial to consumers who are unfamiliar with the use and maintenance of a computer. Replacement options may present an advantage over an RMA if the customer is disrupted enough by a product's absence (such as computer upgrades), but the low failure rate of the products and the ability to buy temporary substitutes usually offsets the price. Some items such as low-end headphones may consistently fail before the end of the coverage period, which can be advantageous.

Presence among retailers

Service plans are seen mainly in office stores and electronics retailers, largely because of perceived fragility of electronics hardware and insecurity over the use of refurbished product. Some items such as computers and sale items produce very little profit for retailers, so selling service plans and accessories is essential to profiting from the transaction (see
Loss leader A loss leader (also leader) is a pricing strategy where a product is sold at a price below its market cost to stimulate other sales of more profitable goods or services. With this sales promotion/marketing strategy, a "leader" is any popular artic ...
). In these cases, service plans are usually bundled with additional high-margin services, such as phone support, at reduced prices to add to the perceived value of purchasing them. Some retailers that offer service plans include Sears (Master/Repair Protection Agreement/Merchandise Replacement Agreement),
OfficeMax OfficeMax is an American office supplies retailer founded in 1988. It is now a subsidiary of The ODP Corporation, which is headquartered in Boca Raton, Florida. As of December 2012, OfficeMax operated 941 stores in 47 states, Puerto Rico, the U. ...
(MaxAssurance Warranty Plan),
Best Buy Best Buy Co. Inc. is an American multinational consumer electronics retailer headquartered in Richfield, Minnesota. Originally founded by Richard M. Schulze and James Wheeler in 1966 as an audio specialty store called Sound of Music, it was rebra ...
(Geek Squad Protection),
CompUSA CompUSA was a retailer and reseller of personal computers, consumer electronics, technology products and computer services. Starting with one brick-and-mortar store in 1986 under the name Soft Warehouse, by the 1990s CompUSA had grown into a nat ...
(Technology Assurance Program), hhgregg,
Office Depot The ODP Corporation is an American office supply holding company headquartered in Boca Raton, Florida. The company has combined annual sales of approximately $11 billion, and employs about 38,000 associates with businesses in the United States. ...
(Performance Protection Plan),
Radio Shack RadioShack, formerly RadioShack Corporation, is an American retailer founded in 1921. At its peak in 1999, RadioShack operated over 8,000 worldwide stores named RadioShack or Tandy Electronics in the United States, Mexico, United Kingdom, Austra ...
(Replacement Plan/ Repair Plan), Staples (Technical Support and Protection Plan/ Product Replacement Plan), Ritz Camera Centers (Extended Service Plan), Target (Extended Service Plan), and Brand Source (Expert Protection).

See also

* break/fix, the fee-for-service'' alternative to a service plan in commercial IT environments Contract law