Optimal Reliability, Warranty Length, Price and Service Quality for Repeat Purchase Products

Abstract

The product warranty is becoming more and more important for the companies providing long life cycle products. In this paper, a decision model is developed to determine the optimal reliability, price, warranty length and warranty service quality. The demand function of the model characterizes the repeat purchase process which is related with the customer satisfaction for warranty service quality. We also develop a warranty delivery cost function to model the cost of service quality. We look at both stable and dynamic scenarios which are based on whether the price, warranty length and service quality are constant over the product life cycle. The maximum principle method is used to obtain optimal solutions for dynamic situations. Finally, the management implication get from the model solutions is discussed.