Towards dimensionalizing warranty information: The role of consumer costs of warranty redemption

Firms routinely offer warranties, often as attempts to differentiate their offerings from those of competitors. Despite this practice common to virtually every consumer durable category, extant research has been inconclusive regarding the effect of warranties on quality judgments. One potential limitation of these prior investigations is the failure to model a key element of a product warranty - consumer-side transaction costs associated with warranty redemption. In this article, we introduce the role of consumer-side transaction costs associated with warranty redemption and examine the joint impact of warranty length and warranty redemption costs for brand names of varying strength on consumers' judgments of product quality. Two experiments show that warranty length signals security but not quality, and that perceived quality increases as consumers' warranty redemption costs decrease, provided that the warranty length is short. Different dimensions or aspects of warranties have different effects on perceived quality. The implications of the results for understanding conflicting findings in the warranty-quality literature are discussed.