New Product Launching with Pricing, Free Replacement, Rework, and Warranty Policies via Genetic Algorithmic Approach

Abstract

New products are appearing in the marketplace at an ever-increasing step. Their launching is either market driven, or technology driven. Pricing and warranty policies play a vital role in launching of a new product, consequently growth of a company. In this paper a decision model is proposed to determine the pricing and warranty polices of a newly launched product considering free replacement during warranty period, and reworking during production process. We have assumed that the reworking is performed for the defective items, which are produced when a machine shifts from in-control state to out-of-control state to make them perfect. Profit function is formulated by combining the diffusion models and cost model. Structured optimal policies are proposed using optimal control theory and genetic algorithm solution approach is employed to explore the optimum values of price and warranty for every period of the product’s life cycle. Numerical example is presented considering different values of model parameters. Further, sensitivity analysis is performed to study the impact of model parameters on the profit model. The results of the paper will be greatly useful for the decision-makers, as it allows them to identify the role of the selected parameters during the entire life cycle of the product, and to study the long-term policy of a newly launched product.