Unwarranted Warranty

Is it ethical to market pricey extended warranties that most people don’t need?

Q. Markups on home appliances are not so high lately, so our employer is encouraging the salesmen to make up some of the slack by pushing “extended service warranties.” The problem is that these warranties are very expensive and most customers don’t really need them.

A. The fact that something is very expensive and may not suit every customer does not automatically mean that it is unethical to offer it. But it is true that selling such a service involves many ethical pitfalls.

According to Jewish law, it is not unethical to sell something with a very high markup. If you provide a valuable service that the informed customer is willing to pay for, you don’t have to suffer because your outlays are low. However, there are two things to watch out for.

First, the customer has the right to assume that your prices are “in the ballpark.” Some price variation among merchants is normal, due to differences in service, location, and specialty items of each place of business. (Businesses often have low prices on high volume items and high prices on less popular ones; but different merchants will do their volume business in different products.) But if your place of business charges a price which is well beyond what competitors charge for a virtually identical product, the customer should be informed. We learn this from the Biblical verse, “And when you sell to your fellow or buy from your fellow, let not each man take advantage of his brother” (Leviticus 25:14).

Anyway, ethics aside, charging way beyond what others get is a surefire way to alienate your customers.

Second, while it is not improper to sell something for a high markup, it is wrong to describe an overpriced item as a bargain or as “low-priced.” When you call something a bargain, you are clearly signaling the consumer that your price is especially low; you should stand by your word.

What about the fact that such warranties are not really advantageous for most customers? That doesn’t prevent you from pointing out the benefits of this service for those customers who may really benefit. There are always a few worriers out there who greatly value the peace of mind knowing that they are free from repair bills for a period of years. But here again there are two pitfalls.

A salesperson is permitted to give a sales pitch that emphasizes the positive aspects of his or her merchandise. If the merchandise just doesn’t suit everyone, then it is up to the salesperson to make out the best case for the attractiveness of the item and up to the customer to decide if the pitch is convincing. (Of course if the merchandise suffers some actual defect, then the salesperson must reveal this to the customer. A defective product is different than one that is of good quality but may not fit the needs of every buyer.)

But a salesperson is not permitted to give partial advice. A salesperson is not expected to be objective and impartial, and the customer knows that the description he or she is receiving, while accurate, will also be one-sided. But when the salesperson uses words like “I advise you to take out this plan” or “I see this plan really suits your needs,” then he or she is putting on the hat of the expert advisor; such advice needs to be completely objective. We learn this from the verse, “Don’t put a stumbling block before the blind” (Vayikra 19:14). Rashi explains that this refers to someone who is “blind” to the bias of the advisor: “Don’t advise someone to sell his field and buy a donkey, if your true intention is to acquire the field for yourself.”

In general, it is quite problematic for salespeople to give advice. Besides the fact that it is almost impossible to maintain the proper objectivity, very often salespeople are not really experts in the merchandise they sell, so they’re not truly qualified to provide expert advice.

The second pitfall here is misleading the customer. Even if the price is a bit stiff, there is nothing wrong with pointing out to the customer that paying an extra hundred dollars for a service contract could save him thousands of dollars in future repairs, and so he’s really buying peace of mind. But you need to be consistent! For example, if the service contract doesn’t cover every possible kind of breakdown, then the customer is not getting peace of mind at all — only an insurance policy with an inflated price tag and a limited value. Likewise, if some kind of protection is provided by law or by the ordinary warranty, it’s forbidden to state or imply that they are included in the extended warranty.

It goes without saying that pressure tactics are always improper, no matter what is being sold.

ADDITIONAL SOURCES: Shulchan Arukh Choshen Mishpat chapters 227, 228.