Study and analysis of price warranty length and production quantity on warranty policies

Abstract

Purchase decisions in the market are usually based on the product attributes which can be influenced by factors under the producer s control, such as product quantity, product price and warranty length of the product. These factors play an important role in maximizing the expected profit of any manufacturing industry. The selling price of the product has an influence on the consumer s willingness to purchase the product, and thereby would increase the manufacturer s profit. A general framework which integrates the decisions such as product pricing, customer service and production quantity in order to maximize the expected profit is essential for any manufacturing industry. The profit maximization models reported in the literature have considered only product price and warranty length as decision variables. It is found from the literature that the development of profit maximization models with the decision variables viz., price of the product, warranty length and also the quantity of production is scarcely reported in the literature. In this study, profit maximization models for Free Replacement Warranty policy (FRW) and Pro-Rata Warranty policy (PRW) under static sales market for a single period model with pricing, warranty length and production quantity as decision variables have been proposed. Three models viz., Profit Maximization (Cost Independent) Model under Free Replacement Warranty Policy (PMCI-FRW), Profit Maximization (Cost Dependent) Model under Free Replacement Warranty Policy (PMCD-FRW) and Profit Maximization (Cost Independent) Model under Pro-Rata Warranty Policy (PMCI-PRW) have been developed. A sensitivity analysis is carried out to study the effect of price, warranty length, production quantity, price elasticity, warranty period elasticity and salvage value of the product on the profit. The study can be extended by violating the assumptions made in the proposed profit maximization models. newline newline newline