Extended warranty policies with varying objectives

Abstract

We consider a repairable system subject to two types of failures, minor and major requiring minimal repair and replacement, respectively, as maintenance actions. Extended warranty models for the system that includes a free replacement period and an extended warranty period are analysed. Consumers have several warranty options during the extended warranty period. Explicit expressions for the manufacturer’s long run average profit per unit time under these options are obtained. We enlarge the objective function by including the total sales volume. This is done by considering the demand as a displaced log linear function of the product price, fixed warranty period and the extended warranty period. Finally, we include the penalty cost of customer’s non-return into the objective function. Numerical illustrations are provided in each case to demonstrate optimal pricing and warranty period.