Study On Warranty Policy And Differential Pricing Decisions Considering Risk Preference

With the development of the society, warranty service is playing a more and more important role in the product transactions. Many manufactures are considering how to provide the consumer products of better warranty service to attract more consumers. The price of the warranty and the length of the warranty period not only affect the interests of the consumers, but also having effect with the revenue of the manufactures. With the diversity of consumer demand for the product, when product quality is same and different, the requirements of the warranty of the consumer are different. When consumers have a high demand of the warranty period and different consumers with different risk preference, it will affect the desire of buying the warranty service and the warranty price. In addition, the risk preference of the manufacture has a relationship with the revenue of warranty service. 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. The utility of the product bringing to consumer will affect the desire of whether the consumer will buy the product or service.Considering the reality, based on the risk preference theory and utility theory, considering free replacement and pro-rata warranty policy, this paper studies the differential pricing issues for the product with warranty policy under two kinds of warranty policy, with modeling quantitative analysis method. The specific studies are as follows:The warranty policy, risk preference, 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 warranty policy considering utility.The free replacement warranty and pro-rata warranty policy are mainly considered. This article introduces the parameters of risk preference of the manufacture and consumer, which represents different types of manufactures and consumers. In order to achieve the maximum warranty revenue of the manufacture, manufacturers need to order different price under different failure rate and the risk preference of the consumers in the same warranty period. Besides, it introduces the utility of the manufacture into the model of the revenue of warranty service. Finally, it establish the warranty model considering the risk preference of manufacture and consumer.Meanwhile, according to the distribution function of the product failure with Possion 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 a large number of 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.