Determination of optimal warranty length for smart wearable device considering customer complaint

Abstract

ABSTRACT This study investigates optimal warranty length for a new type of smart wearable device to maximize manufacturer’s profit in a competitive market. Most studies explore optimal warranty length based on product performance without considering customer complaints. In this study, unlike existing models, the optimal warranty length is obtained by maximizing an expected profit function comprising essential factors such as customer complaints, early and late warranty periods, product reliability, and reduced profit, using Bayesian analysis. Managers can effectively integrate these factors, and can be more confident about the accuracy of estimated optimal warranty length. This study’s contribution is to propose a methodology to develop new types of smart wearable devices considering their long-term commercial prospects. Sensitivity analyses indicate that in the early warranty period, managers should be more concerned about average reduced profit due to customer complaints and reduced profit percentage due to complaint handling costs. In the late warranty period, improved profit percentage due to good response to complaints is essential in smart wearable device sales. Consequently, managers should adequately deal with customer complaints about smart wearable devices, whether in the early or late warranty period.