Hardware support past the warranty period

Hardware support typically includes a free warranty period, ranging from a few months for consumer products to a year or more for larger, enterprise systems. After the warranty period customers can elect to purchase so-called extended warranty contracts to continue the service.

• Offer a premium warranty program from the start. Many customers will pay extra for better service. For instance, your basic warranty could cover the cost of replacing parts when shipped back to the factory but customers may want (and be willing to pay) for advanced replacement service.
• Base the price of extended warranty on the product price. The price for extended warranty is often expressed as a fixed price but is typically calculated as a percentage of the product price. The percentage varies depending on the product price. It may be a couple points for very large systems (say, $500k) but 10% for consumer equipment. (This would be on top of charges made for supporting the software on the equipment.
• Increase the price for older equipment. Older equipment tends to break more, so, unlike for software support, the cost of extended warranty goes up over time. This is an inducement for customers to upgrade to more recent machines with lower support costs.
• Attend to end-of-life. After several years it may not be possible to provide extended warranty as getting parts become difficult or impossible. So price increases are not enough: you also need to define a cut-off date for support.
• Define a policy for expired warranties. Most vendors sell extended warranty only to customers that are currently under warranty to avoid the unpleasant fact that customers may wait until a problem develops before purchasing the extended warranty. Once the warranty has expired customers must use a fee-based service (which is more expensive, if yu have to use it, than buying a contract.)