Study On Multiple Warranty And Differential Pricing Decisions Based On Consumer Utility

Warranty service has an important role in the product transactions. Many businesses are considering how to provide the consumer products of better warranty service to attract more consumers. The length of the warranty not only has a relationship with the interests of the consumer, but also with the efficiency of enterprises. With the diversity of consumer demand for the product, when product quality is same, the requirements of the warranty of the consumer are different. In order to meet the needs of different consumers, some businesses have launched an "extended product warranty" service. That is, the warranty can be extended as long as the consumer pay more for the product. This means that there should be different warranty and different prices to the same quality products. Usually, the price of the product mainly depends on the cost. But with the continuous development of the economy, the buying behavior of the consumer is changing constantly, and then affects the price. Whether the consumer buy a product often depends on what and how many consumers could get from the products.Considering the reality, based on the consumer utility theory, considering free replacement and pro-rata warranty policy, this paper studies the differential pricing issues for the product with multiple warranty under two kinds of warranty policy, with modeling quantitative analysis method. The specific studies are as follows:The warranty polity, consumer utility theory and differential pricing are reviewed. This paper sorts and summarizes the correlative literatures, and finds the limitation of the research. Basing on this, this paper finds the meaning to study the differential pricing issues for the product with multiple warranty considering consumer utility.The free replacement warranty and pro-rata warranty policy are mainly considered. This article introduces the parameters of the consumer, which represents different types of consumers. In order to meet the needs of different types of consumers, manufacturers provide different warranty and differential pricing to the same product of quality. And consumer utility is introduced to the differential pricing model. This paper establishes the differential pricing model for the product with multiple warranty under consumer utility meeting the individual rationality constraint and the incentive compatibility constraint.Meanwhile, according to the distribution function of the product failure with Exponential distribution and Weibull distribution, this article defines the product warranty and price as decision variables, and develops a profit-maximization pricing model respectively. This paper employs optimization theory and method to derive the optimal pricing policy, and verifies the validity of the model through the numerical analysis and analyzes the difference between differential pricing and single pricing. Then this article analyzes the impact of the consumer shift flexibility to the benefits of manufacturers.Finally, a summary of the full text is brought, which sums up the conclusions and contribution of this paper, points out the inadequacy, and further research directions.