Sub-Region Warranty Differential Pricing Optimization Strategy Based on Regional Granularity of Use Reliability

Abstract

Despite the various advantages of existing warranty designs, these designs are still limited to inherent reliability and ignore the interaction between use reliability and regional difference. A new sub-region warranty differential pricing strategy based on the regional granularity of use reliability is proposed to solve these issues. A use reliability prediction model based on regional granularity partition results and after-sales failure data is established to evaluate product use reliability accurately in different sub-regions. Then, a novel high-dimensional optimization model that considers the regional difference in use reliability, warranty, and price is developed to optimize the regional warranty differential pricing strategy. Two scenarios for pricing and warranty, namely, unified and partition warranty schemes, are considered, and the necessary optimality conditions for each scenario are determined. Afterward, a practical case study is conducted in the air-conditioning industry to verify the performance of the proposed model. The sensitivity of the model is also analyzed. Numerical experiments show that the sub-region warranty differential pricing strategy allows for a suitable trade-off among use reliability, warranty, and selling price. Moderately reducing the selling price of sub-regions with high use reliability and increasing the selling price of sub-regions with low use reliability can enhance profitability. This work provides manufacturers with guidelines on designing sub-region warranty differential pricing strategies.