The
extended warranties that have become the primary business model of many
consumer stores utilize a similar principal to lotteries and casinos--human ignorance.
The failure rate of consumer products is usually defined by a
bathtub curve. The product has an expected failure time around which time the expectation of failure is high (approaching 100%). No rational company will sell a warranty that covers this time frame for less than the cost of a new product--the best a consumer could theoretically do is be loaning a company money without interest to get a new product at some point in the future.
On the other end of the spectrum are items that were in some way defective. These defects tend to present themselves very early on which is why manufacturers provide warranties at time of purchase (often in the form of 30-days, 90-days, or even a year depending on the item and how long it's expected to take to discover defects). Stores that buy-into
The Best Buy Way only start covering the product
after the manufacturer warranty.
This means that in almost all cases, the manufacturer handles defective items through the original warranty, and the store collects a fee during the life of your product with a very low likelihood that it'll ever need to cover an issue in the product. Moreover, by the time that the expected life of the product is coming to an end, it's very likely that the cost to replace the product has dropped significantly, certainly to a point much below what has been paid-out over the products' life.