You've decided that an extended warranty is a great product to add to your catalog. Wonderful. Now, how do you decide the macroeconomics of an extended warranty?
Two issues here, perceived value and cost.
One way to think about the pricing of an extended warranty is to understand what an extended warranty is to the consumer. What you're selling is a type of insurance on the consumer's investment in your product. So, how much would the average purchaser of your product be willing to pay to guarantee that product will be usable for a period of time which is longer than the basic manufacturer's warranty, say, one year from the date of purchase? Depending on the nature of the product, 10-20% of the advertised cost of a product could be a good place to start.
Along with perceived value, how much it will cost your company to make good on your extended warranty program will mean the difference between a successful program and a crashing business failure. Exploring an extended warranty program is a great way to reel in quality control issues and think about advancing design concepts that limit mechanical failure or wear and tear issues that may be characterized as mechanical failure.
Note: There are many pitfalls in the world of warranties. A good approach to a warranty program will require a thorough analysis of development costs, pricing, margins, customer service costs, logistics costs, customer satisfaction, distribution channels, sales channels and others issues.