Designing and pricing menus of extended warranty contracts

Hartman, Joseph C.; Laksana, Kamonkan

doi:10.1002/nav.20333

Cited by 76 publications

(36 citation statements)

References 38 publications

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“…Rinsaka and Sandoh (2006) extend the work of Murthy and Asgharizadeh (1999) to the time after the initial warranty period. Within a multi-stage decision making framework, Hartman and Laksana (2009) examine the optimal strategies for equipment owners with regards to the types of extended warranty contracts as well as pricing policies. They show that by offering multiple contracts a service provider can dramatically increase its profit.…”

Section: Literature Reviewmentioning

confidence: 99%

Optimal design of uptime-guarantee contracts under IGFR valuations and convex costs

Hezarkhani

2017

European Journal of Operational Research

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An uptime-guarantee contract commits a service provider to maintain the functionality of a customer's equipment at least for certain fraction of working time during a contracted period. This paper addresses the optimal design of uptime-guarantee contracts for the service provider when the customer's valuation of a contract with a given guaranteed uptime level has an Increasing Generalized Failure Rate (IGFR) distribution. We first consider the case where the service provider proposes only one contract and characterize the optimal contract in terms of price as well as guaranteed uptime level assuming that the service provider's cost function is convex. In the second part, the case where the service provider offers a menu of contracts is considered. Given the guaranteed uptime levels of different contracts in the menu, we calculate the corresponding optimal prices. We also give the necessary and sufficient conditions for the existence of optimal contract menus with positive expected profits.

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Section: Literature Reviewmentioning

confidence: 99%

Optimal design of uptime-guarantee contracts under IGFR valuations and convex costs

Hezarkhani

2017

European Journal of Operational Research

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“…However, customer behaviors are heterogeneous, e.g., customer use rates [18,19,25,38] and customer risk preferences [6,9], and hence customers value a warranty coverage differently [20,37]. This creates variations in insurance demands and in the willingness to pay for the warranty from customers' end.…”

Section: Introductionmentioning

confidence: 98%

“…The model was extended by Jack and Murthy [13] and Gallego et al [6] to allow the customers to choose the starting date and length of the extended warranty. Hartman and Laksana [9] used dynamic programming to derive a menu of extended warranties for the customers. On the other hand, the past two decades have witnessed a substantial growth in both research and applications on two-dimensional (2-D) warranties.…”

Section: Introductionmentioning

confidence: 99%

Warranty menu design for a two-dimensional warranty

Murthy

2016

Reliability Engineering & System Safety

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a b s t r a c tFierce competitions in the commercial product market have forced manufacturers to provide customerfriendly warranties with a view to achieving higher customer satisfaction and increasing the market share. This study proposes a strategy that offers customers a two-dimensional warranty menu with a number of warranty choices, called a flexible warranty policy. We investigate the design of a flexible twodimensional warranty policy that contains a number of rectangular regions. This warranty policy is obtained by dividing customers into several groups according to their use rates and providing each group a germane warranty region. Consumers choose a favorable one from the menu according to their usage behaviors. Evidently, this flexible warranty policy is attractive to users of different usage behaviors, and thus, it gives the manufacturer a good position in advertising the product. When consumers are unaware about their use rates upon purchase, we consider a fixed two-dimensional warranty policy with a staircase warranty region and show that it is equivalent to the flexible policy. Such an equivalence reveals the inherent relationship between the rectangular warranty policy, the L-shape warranty policy, the stepstair warranty policy and the iso-probability of failure warranty policy that were extensively discussed in the literature.

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“…Extended Warranty, Network Externality, Contract Coordination, Game Model, Two-Part Tariff pects: one is the design of the extended warranty, which is researched from the points of view such as cost of extended warranty [3], range of extended warranty [4], customers' risk preferences [5], period of extended warranty [6], the additive demand [7] and so forth. The second is about the selection of supply chain extended warranty mode and its optimization.…”

Section: Introductionmentioning

confidence: 99%

Supply Chain Coordination for Strong Retailer with Extended Warranty under Network Externality

Tan¹,

Yi²,

Yao³

2015

JSSM

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This paper constructed a retailer-leading supply chain system considering the extended warranty (EW) with single manufacturer and single retailer to study the influence of network externality on retailer-leading supply chain coordination. First of all, we analyzed and compared the retail price, EW price, EW quality, and the total system profit in centralized and decentralized model respectively. Then we analyzed the influence of network externality on decision variables and system profits. We found that the network externality increased the loss of decision efficiency. After that, we considered the coordination of the supply chain system with extended warranty. Finally, some numerical examples were presented for further analysis. KeywordsExtended Warranty, Network Externality, Contract Coordination, Game Model, Two-Part Tariff pects: one is the design of the extended warranty, which is researched from the points of view such as cost of extended warranty [3], range of extended warranty [4], customers' risk preferences [5], period of extended warranty [6], the additive demand [7] and so forth. The second is about the selection of supply chain extended warranty mode and its optimization. Desai and Padmanabhan [8] studied the coordination of extended warranty distribution channels from manufacturers' standpoint and its research results showed that the hybrid channel was manufacturers' optimal choice. Wang and Hu [9] studied how attractive index of extended warranty influenced manufacturers' choice of provision modes of extended warranty in the form of modeling. In addition, Zhang et al.[10] studied the effects of service level on supply chain and manufacturers' optimal choice of extended warranty sales channels.Obviously, the papers above provide some good ideas for the related researches of extended warranty, but currently the studies are confined to the situation of manufacturers dominating the supply chain. The problem of supply chain coordination that strong retailers dominate the supply chain and provide extended warranty (such as Gome and Suning described above) is not yet considered.In the meantime, many products, such as mobile phones, computers and so on, have the characteristics of network externality in the network economy era. And in the reality, the commodities such as mobile phones, computers with network externality are the target customers of extended warranty. Katz and Srapiro [11] defined network externality as that a single consumer's utility increases with the increase of the total number who buy the same products. Shankar and Bayus [12] summed up that the influencing factors of network externality were network scale and the intensity of network externality. And the intensity of network externality refers to the marginal effect of the network scale increasing per unit on demand. They also pointed out that the intensity of network externality depended on the factors such as customer preferences, characteristics of consumers' background, customer loyalties and so on. After their researches, scholar...

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Designing and pricing menus of extended warranty contracts

Cited by 76 publications

References 38 publications

Optimal design of uptime-guarantee contracts under IGFR valuations and convex costs

Optimal design of uptime-guarantee contracts under IGFR valuations and convex costs

Warranty menu design for a two-dimensional warranty

Supply Chain Coordination for Strong Retailer with Extended Warranty under Network Externality

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