Product Warranty Research Articles

An approach for determination of warranty length

The use of product warranties as a competitive marketing variable has increased substantially during the past decade. Warranty length is often the most visible and marketed warranty element. However, the published literature offers no approach to aid determination of warranty length. This paper treats product warranty as a marketing variable and focuses on aiding decisions on what warranty length to offer. Results on warranty length are derived for three generic warranty types, given information on exogenous factors such as warranty and price elasticities, costs, and product failure rates. Short- and long-run decision-making perspectives are contrasted. Managerial use of the results is illustrated through econometric estimation based on analysis of automobile data. Warranty elasticity in our application is estimated to be 0.143.

Content and performance of growth-seeking strategies: A comparison of small firms in high- and low technology industries

The question of how to grow and gain market share is repeatedly asked by small firm managers. Yet little help exists in the academic literature in terms of identification of specific business practices and competitive tactics associated with the pursuit of market share growth. Rather, most discussion of appropriate strategies for small firm growth centers around the prescription of broad strategy types (e.g., the often recommended niche strat- egy). Furthermore, the environment's potential effects on the viability of growth strategies seldom receive adequate treatment in the small firm strategy literature despite the long-acknowledged influence of environmental conditions on strategy content. This paper describes a study of the business strategies used by small, growth-seeking firms in high- and low-technology industries. The construct of strategy was examined from both a micro level, focusing on individual strategy dimensions, and a macro level, focusing on the firms' overall strategic postures and patterns of strategy-related variables. Data were collected from the senior executives of 57 small manufacturing firms whose mission strategies were to aggressively increase sales and market share. The data indicate that growth-seeking firms in high-technology industries, relative to those in low-technology industries, (1) rely more heavily on advertising, (2) place more emphasis on product-related issues (e.g., new product development, superior product warranties) as a basis for building market share, (3) rely more heavily on formal planning activities, (4) place more emphasis on customer service/support, (5) rely more heavily on external financing, (6) rely more heavily on premium pricing strategies, and (7) have more entrepreneurial strategic postures. The data also indicate that an entrepreneurial strategic posture is more positively associated with firm performance among growth-seeking firms in low-tech industries than among those in high-tech industries, although there are exceptions to this finding. Cluster analysis was used to identify the content and performance of various strategies (operationally defined as patterns of strategic variables) associated with growth-seeking firms in high- and low-technology industries. Four strategies were identified through this technique — two of which are most common among firms in low-tech industries, one of which is most common among firms in high-tech industries, and one of which is equally prevalent in both industry types. These results corroborate several of the aforementioned findings regarding the effects of industry technological sophistication on dimensions of firm strategy. For example, they demonstrate the general aversion among growth-seeking firms in low-tech industries to premium pricing. Furthermore, they suggest that, overall, growth-seeking firms in low-tech industries may be somewhat more disposed to pursuing cost-leadership strategies and less disposed to pursuing differentiation strategies than growth-seeking firms in high-tech industries. There were no overall performance differences across the four strategy types identified through the cluster analysis. However, the data suggest that an entrepreneurial strategic posture is most strongly associated with high performance among firms that have a cohesive and focused strategic mix or pattern of strategic decisions. This finding holds for growth-seeking firms in both industry types.

OPTIMAL RELIABILITY CHOICE IN PRODUCT DESIGN

In designing new products, the reliability of the product is an important variable. Greater reliability implies higher unit cost and hence higher selling price. The buyer's decision to pay a higher price is influenced by the signaling mechanism which conveys information about product reliability. Product warranty is one such signal. The total sales depend on marketing variables such as selling price and warranty. The cost of servicing warranty depends on product reliability. This implies that decisions regarding product reliability at the design stage must be done in a framework which takes into account the marketing variables. In this paper, we develop a simple model which integrates marketing variables into the design phase and the reliability decisions are made jointly with marketing variables to maximize total profits.

Note—A Prediction Model for Manufacturer Warranty Reserves

A model for predicting warranty reserves for manufactured units having exponential failures is extended for more general failure distributions. The model allows for discounting. Sample calculations are provided.

Note-A Prediction Model for Manufacturer Warranty Reserves

A model for predicting warranty reserves for manufactured units having exponential failures is extended for more general failure distributions. The model allows for discounting. Sample calculations...

Relative Importance of Country of Origin, Warranty, and Retail Store Image on Product Evaluations

The relative importance of country of origin, product warranty, and retail store image on consumers′ product quality perception, overall attitude toward the product, and purchase intentions is investigated. A 2x2x2 full factorial design with two levels (high and low) of country of origin, warranty and retail store image is utilised. ANOVA results show that country of origin and warranty cues have significant impacts on the three dependent measures. The interaction effects of all three independent variables are significant for the quality perception and overall attitude towards the product but are not significant for the purchase intentions. In addition excellent warranty terms combined with store reputation has a greater impact on the dependent variables than the country‐of‐origin cue. Managerial implications of the research findings are discussed.

Lemon Laws: Intent, Experience, and a Pro‐Consumer Model

Under deregulation, public policies regarding consumer rights and product warranties have shifted. This paper reviews the rationale for lemon laws, state legislation intended to help consumers resolve new car performance, and repair problems. It then compares consumers’ redress under these laws to redress under other remedies. Experience with Vermont's legislation, one of the most aggressive lemon laws, is reviewed and analyzed in detail as the basis for formulating public policy recommendations in this area.

An Investigation of Consumer Product Warranties as Market Signals of Product Reliability

Several explanations of the purpose for consumer product warranties can be found in the marketing liteature. However, comparatively little research has been done to develop and test a theory of the consumer product warranty. Recently the Market Signal Theory which posits that warranties serve as signals of product reliability, has emerged in the economic, legal, and marketing literature. In this article, a test of the Market Signal Theory is conducted usign pre- and post-Magnuson-Moss Act warranties. Marketing and public policy implications of the Market Signal Theory and directions for future research are also discussed.

An Intertemporal Model of Warranties

Using a simple two-period model, this paper attempts to explain certaini interesting intertemporal properties of product warranties. Specifically, why does coverage generally fall over time and why is the typical warranty's life so much shorter than the expected life of the product it covers? We view warranties as a partial solution to the double moral hazard problem that arises when buyers cannot readily observe the quality built into a product, and sellers cannot observe the care with which buyers use it. The optimal warranty strikes the right balance between providing incentives for seller quality and for buyer care. Under certain conditions, a two-period warranty will render even the first-best (i.e., full information) solution achievable. Un modlde intertemporel dce garanties. Ce memoire tente d'expliquer certaines proprietes intertemporelles interessantes des garanties sur les produits a l'aide d'un modele simple sur deux periodes. Specifiquement, on se pose les questions suivantes: pourquoi est-ce que generalement la couverture diminue avec le passage du temps? Et pourquoi la vie de la garantie est-elle tellement plus courte que celle du produit auquel elle est attachee? Les garanties sont perques comme une solution partielle a un double probleme de risque

Discounted and Per Unit Costs of Product Warranty

This paper proposes a detailed model of the costs and benefits to producers and consumers of product warranty. Three common types of product warranty contract are considered. In addition, we explicitly allow for randomness in consumer repurchase behavior and for the possibility of an independent damage process acting on products sold under warranty. The cost criteria considered are discounted costs (profits) and per unit costs (and profits). The model is used to analyze the trade-off between warranty and quality control, and to illustrate the sensitivity of warranty costs to environmental variables.

Optimal Enforcement Strategy to Prevent Oil Spills: An Application of a Principal-Agent Model with Moral Hazard

THE purpose of this paper is to provide a general framework from which to analyze government monitoring and enforcement of regulations designed to reduce stochastic externalities. Examples of stochastic externalities include many types of pollution, such as nuclear power plant accidents, oil spills, and leakages from hazardous-waste dumps. Many other health and safety issues may be thought of in this manner, such as the regulation of the workplace by the Occupational Safety and Health Administration (OSHA) and the regulation of prescription drugs and food additives by the Food and Drug Administration (FDA). A final example may be the auto defects program of the Federal Trade Commission (FTC), which is designed to redress consumers for systematic defects that occur after a manufacturer's warranty period has expired. The problem of externalities and their theoretical solutions has received considerable attention in the economics literature. We know, for example, that pollution should be controlled so as to equate marginal costs with marginal benefits. Implementing this rather simple rule, however, is not a straightforward exercise. The effectiveness of any regulation will

Present worth of service cost for consumer product warranty : Kyung S. Park and Seung R. Yee. IEEE Trans. Reliab.R-33 (5) 424 (December 1984)

Present worth of service cost for consumer product warranty : Kyung S. Park and Seung R. Yee. IEEE Trans. Reliab.R-33 (5) 424 (December 1984)

Optimal Use of Product Warranties

Under a warranty service contract, the manufacturer of a product agrees to repair and maintain the product over a certain stated period of time for a fee payment by the customer. When the warranty period is over, the user is responsible for any future repairs. The problems facing the user in this situation are the determination of the economic life of the product and the selection of the best warranty policy, given several optional warranties. This paper develops a simple stochastic model of product failures and the associated repair costs to obtain the economic life (of a warranted product) that minimizes the average total cost rate. The result is useful in evaluating warranty alternatives.

Are Warranties Accurate Signals of Product Reliability?

A major goal of the 1975 Magnuson-Moss Warranty-Federal Trade Commission Improvement Act was to create a market place in which a product's warranty would be an accurate signal of its reliability. Appliances and motor vehicles were studied empirically to determine whether warranties actually do serve as reliability signals. The results of the study show that even after controlling for other cues, warranties are accurate signals.

EXTENDED WARRANTIES, SERVICE CONTRACTS, AND MAINTENANCE AGREEMENTS—A MARKETING OPPORTUNITY?

AB Product warranties, in general, have not been employed by marketers as an important strategic tool, yet the business in extended warranties, service contracts, and maintenance agreements appears to be booming. But why? This article examines current practices, discusses critical issues raised in prior studies and the authors' recent research, and presents suggestions for the marketing of service and maintenance agreements. There is evidence to suggest that the long‐term market potential of many current offerings may be limited; however, careful consideration in defining the prime target markets and designing new types of agreements can help ensure success. The purpose of this article is threefold: first, to offer a brief review of current practices, which profiles the diversity of offerings and corporate philosophies; second, to discuss critical issues raised in prior studies and in our research; and finally, to present suggestions for the marketing of such offerings.

A Proposal for Implementing the FASB's "Reasonably Possible" Disclosure Provision for Product Warranty Liabilities

A central feature of FASB Statement No. 5: Accounting for Contingencies is the requirement (paragraph 8) that probable contingent liabilities be accrued when they can be reasonably estimated. In addition to this accrual paragraph 10 states that [i]f an exposure to loss exists in excess of the amount accrued pursuant to the provisions of paragraph 8, disclosure of the contingency shall be when there is at least a reasonable possibility that a loss or an additional loss may have been incurred. The disclosure shall indicate the nature of the contingency and shall give an estimate of the possible loss or range or state that such an estimate cannot be made (emphasis added). The appendix of FASB No. 5 then goes on to state in paragraph 24 that these provisions specifically apply to product warranties. This appendix also indicates (paragraph 25) that the disclosures described in paragraph 10 are required even if the uncertainty of the product warranty obligation is too great to book the sale and accrual. Given the pervasive nature of these FASB warranty liability require-

The Effectiveness of Advertising Explicit Warranties

An experiment was performed to examine the effects of a manufacturer's warranty contained in print advertisements for three new products. Contrary to expectations that consumers would use this extra information to change their attitudes towards the products, the inclusion of a warranty in the advertisements had no effect on perceived risk or intention to buy these products. The results of this study bring into question the value of manufacturers’ warranties as a promotional tool.

Product Warranties and Double Moral Hazard

This article explores a model of warranties in which moral hazard problems play a key role. The goal is to understand the important characteristics of warranties, including their provision of incomplete insurance and the relationship between product quality and coverage. We analyze a model in which buyers and sellers take actions that affect a product's performance. Since these actions are not cooperatively determined, an incentives problem arises. We characterize the optimal warranty contract and undertake comparative statics to determine the predicted correlation of warranty coverage and product quality.

Present Worth of Service Cost for Consumer Product Warranty

Under a warranty service contract, the manufacturer of a consumer product agrees to repair and maintain the product over a certain stated period of time for a fee from the customer. The manufacturer offering such a service contract is faced with several policy design and planning decisions. Mathematical models of product failures and of future repair costs are basic to the formulation of these decision problems. We assume Weibull time-to-failure distribution for analytic amenability and reasonable realism A repair returns the product to the average condition for a working unit of its age (bad as old). Simple stochastic models of sequences of failures and their costs are developed. Expressions are obtained for the s-expectation of the present worth of the future repair costs.

Manufacturers’ Warranty for Drug Products

Manufacturers’ Warranty for Drug Products