Pricing Strategies On Product Warranty Services

The product's warranty service is a critical part of after-sales market,since it not only provides consumers with after-sales protection,also enhances the competitive position of firms.Generally,product's warranty services include two types of items,basic warranty and extended warranty.The firms in a supply chain have to make their optimal decisions on the services respectively.There comes an important and challenging problem: How does the extended warranty affect the basic one,when a firm provides both of the two type warranties? In the other hand,when the firm chooses different price contracts,like whole price contract or two-part tariff,how does the contracts influences the warranty services?To solve the above problems,this paper,based on durable products research,explores the warranty services optimal decision-making from the view of manufacturer,who provides both basic and extended warranties.Firstly,we find the manufacturer's optimal decisions on the two types of warranties under wholesale price contract.Secondly,we solve the same issue under two-part tariff contract.Finally,we compare the impact of the two kinds of price contracts and two warranties on optimal service decisions,respectively.The main research results shown as follow.(1)In the situation of manufacturer only provides basic warranty,the different price contracts,wholesale price contract vs two-part tariff,doesn't influence the basic warranty coverage.However,once the manufacturer provides both the two warranties,the basic one and the extended one,the price contracts will make difference on the warranty strategies.Specifically,the extended warranty provided by manufacturer will reduce the basic warranty coverage;and the reduction in two-part tariff is more significant than wholesale price contract.(2)There is a threshold of service cost,in the situation of manufacturer only provides basic warranty,that makes the warranty strategies different.When service cost is lower than the threshold,the manufacturer will be responsible for product failures throughout the life cycle.When the service cost is higher than threshold,the manufacturer will only provide a limited warranty coverage,which is negatively related with product failure rate and maintain cost,but positively related with product value.(3)From the view of manufacturer and retailer,the former is more likely to choose twopart tariff contract and provide extended warranty,but the latter prefers wholesale price contract.Interestingly,retailer's preference for extended warranty is dynamic: it hopes the manufacturer to provide extended warranty within the threshold,but prefer the manufacturer do not provide the extended warranty outside of the threshold.Our research have enriched and perfected the product and service pricing theory to a certain extent.Besides,we provided corresponding theoretical models and decision support for enterprises to implement product warranty services.