Warranty policies beneficial to both consumer and producer
This study designs a credible tool which can be used in the situations where warranty policies must be implemented. This tool provides a mechanism for sharing benefits among consumers and producers in price-warranty schedules. Past research has not considered this problem from both parties’ viewpoints. Opportunities for competitive advantages are investigated for two versions of the model. The flexibility of the model, which is a combination of the most widely used warranty policies (free replacement and pro rata compensations), allows the designer to convert to either complete free replacement or complete pro rata policy. Item warranty cost is a function of the warranty periods. Such functions have not previously been investigated. The item cost function can be chosen by the designer of the warranty program. Two item warranty cost functions are chosen for examination, which the functions have reasonable properties for warranty pricing schemes.