Business Management: Warranties | February 2014 Hearing Review

By Charles R. Stone, AuD

StoneCharlieBioBox We have witnessed many changes to the audiology profession during my years of practice. None has been more dramatic than the fourfold increase in the price of hearing devices—from $600 in 1973 to $2,400 today (non-CPI adjusted). Even if this seems reasonable from an inflationary standpoint, it is inescapable that discretionary income for seniors has not risen accordingly. The rising cost of new devices and repairs may influence what seniors purchase, as well as how often they purchase.

Today’s technology resolves many consumer complaints about whistling and hearing in noisy places. However, that technology comes with a higher price tag. It has been reported that the average hearing aid wearer waits 5-plus years before purchasing new devices.1 The key issue is whether higher prices ($2,400 each) will cause consumers to postpone a purchase of new instruments, or will it take a new round of technological advancements to motivate a new purchase?

One might assume that the sales cycle (>5 years) will be offset by the increase in demographics (more buyers). This is unlikely, because the market penetration has not changed over the years. It still remains around 20% with an attrition rate of approximately 10%.1

Charging higher prices for each new set of devices is a diminishing strategy. This may cause your patients to wait even longer before purchasing new devices. Additionally, new competition like Costco and Internet sales undercuts higher prices, with the results being decreased profit margins. What’s worse, when you push your patients toward new devices before they are financially ready, you may be causing them to shop around.

Revenue Growth and Patient Loyalty

In the current market environment, it may be next to impossible to maintain the same profitability in your practice, unless you develop a new revenue source. So, how do you keep your patients loyal and develop new revenue to offset the lower margins?

Consider how your practice derives its revenue, and what it is doing to develop patient loyalty. A good place to start your analysis is to know as much as you can about your patients. With a questionnaire, determine your patients’ current level of satisfaction with what they are wearing (see sample questions below). Their answers will suggest your strategy. If they are not happy, it is time to present newer technology. If they are pleased, think about offering new services that can keep them loyal, yet still generate revenue for your practice.

Consider what your competitors are doing to create loyalty. Do they give batteries away for the life of the aids? Do they offer free office visits or free loaner aids when repairs are needed? The current competition has evolved to include big box stores and franchised networks. They often have good sales experience, and it hurts to see them treat the hearing device as a commodity. Like it or not, we have to compete in the same marketplace with these competitors.

As a strategy to combat these new entrants to the market, consider extended warranties and service contracts to create loyalty and increase revenues. Best Buy promotes extended warranties for two reasons:

1) Consumers like and want this protective coverage, and,

2) Best Buy makes additional revenue from offering it. It is that simple. It is a popular and accepted business practice at most electronic outlets.

Your patients are being presented and conditioned by extended warranty offers on many things they buy. With the cost of repairs on the rise, your consumers are looking for a way to reduce the unexpected sting of repairs. Thus, extended hearing aid warranties can be a great benefit for both you and the patients you serve.

Most hearing aid purchasers are retired and are on a fixed income. Since the recession, the yield on their investments has decreased and is now uncertain at best. Typically, their discretionary income has diminished. An untimely and costly repair may result in another hearing aid in the drawer. Or worse, they may go to the competitor who advertises free in-office repairs to draw new customers. It is horrible to lose a patient forever.

Consider offering them another choice: a flat-fee service contract that gives them both peace of mind, protection, and a bargain price. This represents a two-way win in the form of continued access to your office, plus protection from unexpected repair costs—all by paying one flat annual fee.

Importantly, when you develop a customized extended warranty and service contract, you can build-in professional fees not covered by any third-party payors. You then routinely and regularly promote it to all your patients, as continued coverage when their OEM warranty is about to expire.

Sample Questionnaire

Here is a sample questionnaire that you can administer to new patients, as well as those established customers whose OEM warranties are about to expire:

1) I wear my hearing aids: a) 2-3 hours per day; b) most of the day; c) every day all day.

2) My satisfaction with my hearing aids:  a) very satisfied; b) somewhat satisfied; c) not satisfied at all.

3) I would like to keep my current instrument(s) for another a) 1-2 years; b) 3-4 years; c) 5 or more years.

4) I may have an interest in: a) an extended warranty plan covering damage and repairs; b) office benefits plans (such as covered office calls, in-office repairs, use of loaner aids, procedures not covered by third-party payors); c) loss replacement coverage.

5) I would be willing to consider or try newer technology if it has benefits over what I currently have. a) yes; b) no.

When considering a comprehensive extended coverage program, it is advisable to outsource. State and federal laws vary; it is advisable to choose a company that specializes in warranties and insurance products. You need a company that understands your profession, and has a history of great customer service. (Remember if a practitioner sells warranties that include loss replacement coverage, they are required to hold an insurance license in most states.)

It is advisable to offer both a service warranty product, and an office service agreement. This will separate your professional services from product services. For the product warranty, it is advisable to use one source to administer warranties on all manufacturers’ products. By doing this, you simplify the paperwork and maintain consistency. Loss coverage is very expensive, so to keep prices low, consider offering a service warranty with accidental damage, but no loss coverage. This will keep the pricing of the extended warranty coverage lower and more affordable.

If you offer this coverage to every patient whose warranty is about to run out, you will be receiving new revenue on many of your out-of-warranty patients. Otherwise, you will be receiving much less revenue, coming only from those individuals who need repairs.

Improving Your Bottom Line While Improving Patient Loyalty

Here is the arithmetic. Let’s say you fit 20 new hearing instruments per month on average and have done so for many years.   For the sake of simplicity, let’s say these were all binaural fittings (the industry average is about 80% binaural). You would then see approximately 10 patients per month whose warranties either have run out or are about to run out. If you were able to convert 80% of the actual instruments to extended warranties and made an average of $50 on each, that would equal $800 of new revenue per month (16 instruments times $50). And you will have renewal opportunities every year.

Now let’s compare these same 20 instruments if they are not offered an extended coverage opportunity. Based on industry statistics, those 20 instruments coming off warranty will experience an approximately 20% incidence for a repair (based on the same 20 devices, that equals four needing repairs). For each repair you handle, if you can charge $100 over the repair cost, that equals only $400 in added revenue compared to $800 in the extended coverage example above.

You can see by these examples that promoting extended warranties is more profitable. But equally as important, it keeps your patient loyal to your practice. If combined with your professional services, the patient then has “bumper-to-bumper” coverage. If it is priced reasonably, all your patients’ hearing needs are covered for a year with no large unexpected bills for out of warranty repairs.

Great patient service at a reasonable price creates happy and loyal patients, and provides you with a solution to combat your eroding margins.


1. Kochkin S. MarkeTrak VIII: 25-year trends in the hearing health market. Hearing Review. 2009;16(11):12-31.

Original citation for this article: Stone C. Warranties and the pragmatic practice: Warranties help create loyalties as well as improving your bottom line. Hearing Review. 2014:21(2):22-24.