Warranty Price Research Articles

A Study of Electronic Product Supply Chain Decisions Considering Extended Warranty Services and Manufacturer Misreporting Behavior

In the supply chain management of electronic products, asymmetric cost information is a prevalent issue that can lead manufacturer to misreport costs, thereby exacerbating supply chain imbalances. This study focuses on the electronic product supply chain with an extended warranty service, where the manufacturer bears the after-sales responsibility during the extended warranty period. It explores the decision-making (DM) issues within the supply chain under different information environments and power structures. The Stackelberg game theory is employed to solve and analyze these models, and the main findings are as follows: (1) When supply chain information is symmetrical, centralized DM is the best choice. However, in cases where the supply chain adopts decentralized DM, it is more beneficial for the retailer and the supply chain if the retailer assumes the role of DM leader. Additionally, when the retail price sensitivity coefficient is low, the manufacturer will compete with the retailer for DM priority. Conversely, when the retail price sensitivity coefficient is higher, the manufacturer is better off as a follower in DM; (2) When the supply chain information is asymmetric, the manufacturer may engage in misreporting, which benefits the manufacturer but is detrimental to both the supply chain and the retailer. Moreover, if the price sensitivity coefficient is low, the manufacturer should lead the supply chain DM. Otherwise, the retailer should take the lead in supply chain DM. Adopting such a flexible strategy will prove advantageous for all parties involved in the supply chain. (3) The strategy of “reducing the retail price and increasing the extended warranty price” is a favorable strategy for the supply chain.

Impact of extended warranty service on product pricing in online direct retailers' competitive market

In this paper, we consider a model composed of the three largest online direct retailers to investigate the impact of extended warranty service on product pricing. A single-period static game model and a dynamic game model with two delays are built. We discuss the optimal game strategies and dynamic evolution game behaviors of retailers and analyze the effects of warranty period and price adjustment speed on system stability. The result shows that the optimal extended warranty price, green degree, and extended warranty period lead to the biggest profits for the retailer. From the perspective of maximum profit, retailers should give priority to extending the warranty period, followed by extending the warranty price and extending the green degree of warranty. For the sake of system stability and player performance, retailers should take recent historical data as a reference, and a relatively slow price adjustment speed is needed. To better maintain the stability of the system, the delay feedback control method is adopted which can successfully control the instability of the system.

Optimal pricing and healthcare warranty strategies for chronic diseases

Providing warranties for healthcare is a quality and cost-effective healthcare delivery model. Under a healthcare warranty, the patient is charged a lump-sum payment for the healthcare services administered during a prespecified period regardless of the actual cost incurred by the healthcare provider. Notably, such a fixed-price healthcare delivery model increases the risks of profit maximization among healthcare providers, thereby making pricing decisions crucial. In this paper, we establish an integration model to derive an optimal price and healthcare warranty strategy composed of periodic follow-up for patients with chronic diseases considering patient heterogeneity. This paper introduces the intensity reduction model to capture the effect of follow-up checkups on patients’ risk of developing complications, and accounts for the effect of patients’ learning effects on the risk of complications during the planning horizon. The model allows healthcare providers to make optimal pricing and follow-up decisions under different factors, including follow-up effects, patients’ learning ability, and cost parameters. A case study of diabetes is presented to illustrate the application of the proposed model and analyze the impacts of significant parameters on the optimal solutions. The model and findings form the basis in making decisions for the healthcare warranty pricing of chronic diseases.

Optimal extended warranty pricing and retailing strategies in a closed-loop supply chain

Extended warranties are widely adopted and accepted in the marketplace by manufacturers and retailers as it helps to enhance the customers' post-sale satisfaction. In closed-loop supply chains, the extended warranty not only generates profit for the manufacturer, but also provides warranty returns of the new products for remanufacturing. In this paper, a two-period model is developed and optimal pricing strategies for the extended warranties are derived. We compare the optimal pricing and retailing strategies of the extended warranties for remanufactured and new products offered by the manufacturer with and without the retailer's own extended warranty while considering the competition between the manufacturer and the retailer for the extended warranty of new products. We find that the introduction of the retailer's extended warranty does not always hurt the manufacturer's profit. Numerical analyses also show that there exists an optimal extended warranty length for the manufacturer that maximises its profit. Moreover, we show that the retailer cannot extract more profit by increasing the length of its own extended warranty.

Product reliability and extended warranty in supply chains

AbstractWe study firms' product reliability and extended warranty (EW) pricing decisions in different supply chains. Using a game‐theoretic model, we analyze three supply chains: a centralized supply chain in which the manufacturer sells products and optional EWs directly to consumers (Model C), and two decentralized models in which products and EWs are sold through a retailer with the EW offered by the manufacturer (Model M) or a third‐party insurer (Model I). We also study cases where consumers cannot observe product reliability and investigate the impact of unobservable quality. We find that the manufacturer generates most profits by directly selling both products and EWs, irrespective of whether reliability is observable or not; whereas the retailer prefers selling EWs offered by an insurer when consumers can observe product reliability but prefers sourcing EWs from the manufacturer when product reliability is unobservable. In addition, when the reliability is unobservable to consumers, the manufacturer always chooses a lower reliability than that when consumers can observe the reliability. Such information advantage (over consumers) on product reliability hurts the manufacturer and consumers, and the retailer. With the existence of a third‐party insurer, the manufacturer may be indifferent or prefer to provide EWs. But having the manufacturer competing with the insurer benefits consumers and the retailer under certain conditions. This study offers guidelines on how firms should determine product reliability and EW prices in different supply chains, and sheds light on where a retailer should source EWs based on whether reliability is observable to consumers or not. Finally, our results highlight the importance of establishing a mechanism to credibly disclose product reliability information to consumers.

Dynamic pricing of two-dimensional extended warranty considering the impacts of product price fluctuations and repair learning

Product prices fluctuate dynamically with changes in market supply and demand. This poses a dilemma for dealers, that is, dealers need to establish a dynamic extended warranty (EW) pricing strategy based on the fluctuations in product prices to attract consumers. To address this challenging issue, we establish a dynamic integration model to derive optimal product prices and two-dimensional (2D) EW prices in a multistage dynamic market environment to maximize the dealer’s expected discounted profit during the product life cycle. In order to explore the dynamic influence mechanism between reliability engineering factors and market elements, this model combines the warranty cost model influenced by reliability related repair learning characteristics and the 2D EW demand model influenced by product price fluctuations. The model allows dealers to identify the relationships among various factors, including repair learning characteristic, production scale effect, product cost, EW cost in product reliability level, and fluctuating product demand and EW demand in market demand level, and more important, their effects, on the dealers’ profit. The necessary optimality conditions and case study are conducted for static and dynamic markets.

Who is better off by selling extended warranties in the supply chain: the manufacturer, the retailer, or both?

An extended warranty is an additional service in the market that manufacturers and retailers provide for their customers. In this study, we investigate the optimal extended warranty strategies in a supply chain with a single manufacturer and a single retailer, and consider two single-channel models (the retailer solely provides the service, and the manufacturer solely provides the service) and a dual-channel model (both the retailer and the manufacturer provide the service). Using an analytical model, we demonstrate the optimal pricing decisions for the manufacturer and the retailer under these models and compare the profits of the manufacturer, retailer and supply chain. We find that among the models, customers enjoy a lower extended warranty price with a mild condition when the manufacturer provides the extended warranty service. However, the total profits of the supply chain are usually larger when the retailer sells the extended warranty. Through numerical experiments, we further investigate the influence of customer preferences, and find that the total profits of the supply chain increase if more customers purchase extended warranties from the retailer in the dual-channel model.

A flexible two‐dimensional basic warranty policy with two continuous warranty regions

AbstractFlexible warranty policies can satisfy customers by allowing them to select the warranty regions according to their usage rates. However, customers are usually unaware of their future usage rates when they purchase a product, which makes it difficult to make sound decisions. To address the problem, this paper proposes a flexible two‐dimensional basic warranty policy with two continuous rectangular regions. Customers can gain experience of their usage rates through the first region, and thus make the second region more cost‐effective. The total price of the two subregions is equal to the basic warranty price, which is prespecified by the manufacturer. The objective is to determine the optimal boundary between the two regions from the perspective of customers. First, the learning effect is used to depict the process of gaining experience from the first region. A warranty pricing model is then developed based on the polynomial failure intensity model. On that basis, the customer's expected repair cost over the warranty period is analyzed, and a numerical method is proposed for the optimization problem. A numerical example is presented to demonstrate the effectiveness of the proposed policy. The results show that customers can benefit more from the proposed policy than from the iso‐cost warranty policy.

Product Reliability and Extended Warranty in Supply Chains

Problem definition: We study firms’ reliability and extended warranty (EW) pricing decisions in different supply chain structures. We also consider the product reliability information may or may not be observable by the consumers. Academic/Practical Relevance: This paper contributes to the academic literature by investigating reliability and EW decisions jointly in different supply chains. The results can help practitioners make better reliability and EW decisions, determine how to manage product and EW supply chains, and understand the importance of credibly disclosing reliability information to consumers. Methodology: We use a game-theoretic model to analyze three supply chain models: a centralized supply chain in which the manufacturer sells a product and an optional EW directly to consumers (Model C), and two decentralized models in which the product and EW are sold through a retailer with the EW offered by the manufacturer (Model M) or a third-party insurer (Model I). We also study cases in which consumers cannot observe how reliable the product is and investigate the impact of unobservable quality. Results: We find that the product reliability decision depends on the supply chain structure. On the profit side, the retailer prefers selling EWs offered by a third-party insurer when consumers can observe product reliability but prefers sourcing EWs from a manufacturer when product reliability is unobservable to consumers. We also find that making reliability observable to consumers benefits all parties involved except for the third-party insurer. Managerial Implications: This study offers guidelines on how firms should determine their product reliability and EW prices in different supply chains. In addition, the analysis sheds light on where a retailer should source EWs based on whether the product reliability is observable to consumers or not. Finally, our results highlight the importance of credibly disclosing product reliability information.

A three-level supply chain with warranty services, pricing and marketing decisions

Purpose This paper aims to present various three-level service contracts among the following three participants: a manufacturer, an agent and a customer. The interaction between the aforementioned participants will be modeled using the game theory approach. Under non-cooperative and cooperative games, the optimal sale price, warranty period and warranty price for the manufacturer and the optimal maintenance cost (repair cost) and marketing expenditure for the agent are obtained by maximizing their profits. The satisfaction of the customer is also maximized by being able to choose one of the suggested options from the manufacturer and the agent, based on the risk parameter. Design/methodology/approach Three-echelon supply chains with marketing and warranty services are studied. Game-theoretic approaches (non-cooperative and cooperative) are presented. The non-cooperative approaches are static (NE) and dynamic (Stakelberg) models. The cooperative approach is related to bargaining models (Nash bargaining games). The authors develop a sensitivity analysis of some parameters and their effect. Findings Based on the mentioned drawbacks (i.e. lack of a model containing warranty, marketing and pricing), despite their importance, a developed model is proposed in this research to cover one of the research gaps. In addition, main contributions of this paper that differentiate it from the existing papers are regarding inventory, lost sale and lost goodwill, which are significant in the comparison environment. Another advantage of this study is related to the solution approach, the game theory. Twofold of the games theoretical, i.e. cooperative (in three forms) and non-cooperative are considered, because of their importance. Three types of non-cooperative games are presented as follows: Nash equilibrium – each echelon decides respectively and simultaneously; manufacturer-Stackelberg – the manufacturer has more power than the agent and the agent has more power than the customer; and customer-Stackelberg – customer is leader of the agent and the agent is the leader of manufacturer. The involved cooperative game in this paper is the bargaining problem that the participants can determine how to share the additional profits. Originality/value In this paper, various three-level service contracts will be presented among the following three participants: a manufacturer, an agent and a customer. The interaction between the aforementioned participants will be modeled using the game theory approach. Under non-cooperative and cooperative games, the optimal sale price, warranty period and warranty price for the manufacturer and the optimal maintenance cost (repair cost) and marketing expenditure for the agent are obtained by maximizing their profits. The satisfaction of the customer is also maximized by being able to choose one of the suggested options from the manufacturer and the agent, based on the risk parameter. Several numerical examples are used to illustrate the models presented in this paper. Finally, the authors develop a sensitivity analysis of some parameters and their effects on the objective functions.

Research on Pricing of Flexible Two-Dimensional Extended Warranty Considering Preventive Maintenance

Facing the uncertainty in transaction of two-dimensional extended warranty, a flexible pricing model is presented considering imperfect preventive maintenance combined with the degradation characteristics of item. The measure of two-dimensional preventive maintenance is carried out based on specified age interval or usage interval, the effect of imperfect preventive maintenance is described by age reduction model. The extended warranty cost is modeled from the perspective of manufacturer and customer, the method of gridding search is employed to optimize the maintenance strategy under different cases. Moreover, customized extended warranty price and warranty services are proposed on the basis of consumer usage rates. The results demonstrate that it is helpful to maximize the benefit of vendor by providing customized warranty strategy, the implementation of preventive maintenance during the whole warranty period can effectively reduce warranty cost for both sides.

Coordination of e-commerce supply chain when e-commerce platform providing sales service and extended warranty service

ABSTRACT With the rapid development of cybereconomy and the enhancement of sales service, many e-commerce platforms provide extended warranty service to alleviate consumers from worries about product quality when consumers purchasing products online. This study examines the decisions and coordination of the e-commerce supply chain where the e-commerce platform dominates and provides sales service and extended warranty service. The findings show that the centralised decision-making model is an ideal model because of the low sales price, high service level and high extended warranty price. With the increase of the consumers’ sensitivity coefficient to the extended warranty service price, sales price increases but extended warranty service price and service level decrease, the retailer’s profit and the platform's profit decrease. The proposed contract of ‘revenue sharing joint commission’ can realise the coordination of e-commerce supply chain.

Money Back Warranty on Pricing in Dual Channel Supply Chain (Case Study : Garlick Store Surabaya)

The development of internet brings great influence in business management, especially in supply chain. Transaction conducted through the internet in supply chain known e-fulfillment, is an integrated process from receiving customer order, managing transaction, warehousing, managing transportation, communicating, with customer using media of information technology. Online sales concept opens up the researchers to conduct research on online sales and offline sales simultaneously, known Dual Channel Supply Chain (DCSC). One category of products that are sold using this structure is fashion product. However, selling fashion product using DCSC structure it still has shortcomings and challenges. Due to customer can not make a selection, viewing and researching product and quality inspaction product dierctly. Based on this, some enterprises provide product warranty sales system offered. Warranty as a guarantee given to customer to provide security and comfort for making purchases. Warranty gives impact on price of product, both online and offline. This leads to the need to do a calculation the optimum price considering money back warranty. Optimum price obtained in the model demand function using quadratic programming adressing the objective function in the form profit maximum in individual channel (Pw, Ps and Po) as well as whole profit in DCSC by considering the value of money back warranty (g). The result obatained is optimum price for two scenarios. There are optimum price in individual channel without money back warranty and optimum price in online channel with accomodate money back warranty.

Warranty pricing with consumer learning

We consider a problem in which a firm dynamically prices a product and its warranty service over time. Consumers can learn about the reliability of products based on warranty prices. A firm’s optimal product and warranty pricing policies are characterized. We find that a warranty should be priced lower than the marginal warranty service cost, which implies that warranty sales will not generate profits directly. However, offering a modest warranty still benefits the firm’s overall profits. We also show that consumers’ beliefs and the firm’s warranty policy converge in the long run. In a steady state, either a fraction of consumers will purchase a warranty or no consumer will purchase a warranty. Comparative statics analysis is conducted to show how factors such as a firm’s warranty service cost, consumers’ learning speed, and the heterogeneity of consumers’ handling costs determine consumers’ beliefs, the firm’s warranty policy and profitability in a steady state. Lastly, we note that a firm benefits from consumer learning by hiding the information about the true product reliability only when the true product failure rate is relatively high.

Modelling optimal warranty price for lifetime policies taking into account the uncertainties in life measures

Owing to the assurance of longer reliable service life and greater customer peace of mind, products with a lifetime warranty are becoming more and more popular. Under such policies, both the manufacturer and the buyer are exposed to uncertainties and risks of warranty pricing and product performance since product lifetimes are uncertain and are not well defined in these policies. Considering the uncertainties in the measure of lifetime (useful life), this paper extends previous work of the authors [Rahman, A., & Chattopadhay, G. N. (2010). Modelling risks to manufacturer and buyer for lifetime warranty policies. International Journal of Management Science and Engineering Management, 5, 203–209] to determine the optimal warranty price. Risk preference models are developed to find the optimal warranty price through the use of the manufacturer’s utility function for profit and the buyer’s utility function for repair costs. The sensitivity of the risk preferences models are analysed using numerical examples with respect to factors such as the buyer’s and the manufacturer/dealer’s risk preferences, the buyer’s anticipated and the manufacturer’s estimated product failure intensity, the buyer’s loyalty to the original manufacturer/dealer in repairing failed products, and the buyer’s repair costs for non-warrantied products. Analysis of the developed models reveals that the manufacturer’s decisions on warranty price are strictly related to useful life, failure intensity of the product, and risk preferences. On the other hand, the buyer’s acceptance of a lifetime warranty depends on the expected lifetime of the product, the buyer’s anticipated product failure intensity, anticipated repair costs, and most importantly the buyer’s risk preference.

Optimizing two-dimensional renewable warranty policies for sensor embedded remanufactured products

Purpose: Remanufactured products, in addition to being environment friendly, are popular with consumers because they can offer the latest technology with lower prices in comparison to brand new products. However, some consumers are hesitant to buy remanufactured products because they are skeptical about the quality of the remanufactured product and thus are unsure of the extent to which the product will render services when compared to a new product. A strategy that remanufacturers may employ to entice customers is to offer warranties on remanufactured products. To that end, this paper studies and scrutinizes the impact of offering renewing warranties on remanufactured products. Specifically, the paper suggests a methodology which simultaneously minimizes the cost incurred by the remanufacturers and maximizes the confidence of the consumers towards buying remanufacturing products.Design/methodology/approach: This study uses discrete-event simulation to optimize the implementation of a two-dimensional renewing warranty policy for remanufactured products. The implementation is illustrated using a specific product recovery system called the Advanced Remanufacturing-To-Order (ARTO) system. The experiments used in the study were designed using Taguchi’s Orthogonal Arrays to represent the entire domain of the recovery system so as to observe the system behavior under various experimental conditions. In order to determine the optimum strategy offered by the remanufacturer, various warranty and preventive maintenance scenarios were analyzed using pairwise t-tests along with one-way analysis of variance (ANOVA) and Tukey pairwise comparisons tests for every scenario.Findings: The proposed methodology is able to simultaneously minimize the cost incurred by the remanufacturer, optimize the warranty price and period, and optimize the preventive maintenance strategy resulting in increased consumer confidence.Originality/value: This is the first study that evaluates in a quantitative and comprehensive manner the potential benefits of offering warranties with preventive maintenance on remanufactured products.

Designing the Optimal Extended Warranty Price with Indirect Network Effect

AbstractIn the situation of indirect network effect, this paper mainly studies the optimal extended warranty price. First, the characteristics of the extended warranty price are discussed. Next, the optimal extended warranty price model is advanced. From the model, the authors can draw that the influence factors mainly include the producer and consumers’ risk preferences, the incompatible degree of the producer’s maintenance technology, the extended warranty period, the producer and consumers’ per-occasion maintenance cost. Finally, the authors carry the simulation method to indicate their influence relation. The results have theoretical significance for the automobile producer to ensure the optimal extended warranty price.

PRICING A MOTOR EXTENDED WARRANTY WITH LIMITED USAGE COVER

AbstractProviders of motor extended warranties with limited usage often face difficulty evaluating the impact of usage limits on warranty price because of incomplete usage data. To address this problem, this paper employs a non-parametric interval-censored survival model of time to accumulate a specific usage. This is used to develop an estimator of the probability that a provider is on risk at a specific time in service. The resulting pricing model is applied to a truck extended warranty case study. The case study demonstrates that interval-censored survival models are ideal for use in pricing motor extended warranties with limited usage cover. The results also suggest that employing a usage rate distribution to forecast the number of vehicles on risk can be misleading, especially on an extended warranty with a relatively high usage limit.

Three-level warranty service contract among manufacturer, agent and customer: A game-theoretical approach

A warranty is a service contract between a manufacturer and a customer which plays a vital role in many businesses and legal transactions. In this paper, various three-level service contracts will be presented among the following three participants; a manufacturer, an agent, and a customer. In order to obtain a better result, the interaction between the aforementioned participants will be modeled using the game theory approach. Under non-cooperative and semi-cooperative games, the optimal sale price, warranty period and warranty price for the manufacturer and the optimal maintenance cost or repair cost for the agent are obtained by maximizing their profits. The satisfaction of the customer is also maximized by being able to choose one of the suggested options from the manufacturer and the agent, based on the risk parameter. Several numerical examples and managerial insights are presented and used to illustrate the models presented in this paper.

A STOCHASTIC MODEL FOR TRI-PARTITE SERVICE CONTRACTS

Warranty as a kind of service contract plays a key role in business and legal transactions today. In this paper, we present for the first time a tri-partite service contract model including a manufacturer, an agent and a customer under risk parameter. We determine an optimal sale price, a warranty period and a warranty price for the manufacturer under quantity discount policies. The optimal maintenance cost or repair cost is obtained by the maximizing of an agent's profit according to the penalty cost incurred due to waiting time. Moreover, the customer maximizes his/her satisfaction by purchasing several products and choosing a portfolio of service contracts. Whereas the risk-aversion parameter on the customer side has an impact on their decision for choosing the type of service contract. On the other hand, the discount rate regime on the manufacturer side influences the number of purchased products. We present some numerical examples to illustrate the working logic of our model.