Joint optimization of price, warranty and service investment for capital-intensive equipment considering maintenance capacity limits

Abstract

The insufficient maintenance capacity has recently brought challenges to original equipment manufacturers (OEMs) for capital-intensive equipment in the service for new products. Different from the existing studies of the price and warranty strategy on the premise of unlimited maintenance capacity, this paper considers the influence of limited maintenance capacity and investigates the joint optimization of capacity investment and marketing strategy. For a static/dynamic market, the profit models capturing the interaction among price, warranty length and improved maintenance capacity are developed under two warranty options (with and without preventive maintenance). The proposed models characterize the dynamic negative word-of-mouth effect, the penalty for unmet maintenance demand and the maintenance capacity investment. By maximizing the profit models, OEMs can determine the most profitable strategy to deal with maintenance capacity limits. Furthermore, a case study is conducted verifying the methodology effectiveness and providing managerial insights. The results reveal the differences in strategy design between the scenarios with and without capacity limits. Meanwhile, the conditions determining whether to adopt preventive maintenance actions in the warranty are given. Finally, the sensitivity analysis demonstrates the influence of price/warranty sensitivity, providing practical guidelines for the design of the most profitable strategy responding to different environments.