EconPapers    
Economics at your fingertips  
 

Optimal pricing and two-dimensional warranty policies for a new product

Wei Xie

International Journal of Production Research, 2017, vol. 55, issue 22, 6857-6870

Abstract: For commercial products, pricing and warranty are two crucial marketing strategies, which are used to promote the potential market share. The warranty policy adopted by most of the capital-intensive products, such as machines and automobiles, usually has two dimensions, i.e. warranty age and warranty usage. In this paper, we propose to investigate the profit-maximisation problem, in which the revenue and costs will be affected by the product price and the area of warranty region, for a new product sold under two-dimensional warranty. We assume that the product sales can be captured by a stochastic Bass model based on the nonhomogeneous Poisson process. The product follows a two-dimensional failure process and is covered by a non-renewable free minimal-repair warranty, with age and usage limits. We focus on three revenue/cost components, i.e. sales revenue, warranty cost and production cost, that will significantly affect a firm’s total profit. The profit is maximised by jointly optimising three decision variables, i.e. product price, warranty age limit and warranty usage limit. Numerical experiments are conducted to illustrate the effects of some key parameters, including product reliability, price elasticity, warranty elasticity and learning effect factor, on the optimal settings of the price and warranty region.

Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations Track citations by RSS feed

Downloads: (external link)
http://hdl.handle.net/10.1080/00207543.2017.1355578 (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:taf:tprsxx:v:55:y:2017:i:22:p:6857-6870

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/TPRS20

Access Statistics for this article

International Journal of Production Research is currently edited by Professor A. Dolgui

More articles in International Journal of Production Research from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().

 
Page updated 2018-12-07
Handle: RePEc:taf:tprsxx:v:55:y:2017:i:22:p:6857-6870