Research On "Free Replacement" New Extended Warranty Strategy Of Durable Goods Firms

In the era of service-oriented manufacturing,extended warranties play a crucial role as value-added service products in extending the product value chain.However,traditional extended warranties that offer only free repair services within a specified timeframe can no longer fully satisfy the demands of modern consumers seeking transformation and upgraded services.As a result,a new type of extended warranty,combining traditional features with innovative elements,has continuously emerged in the modern consumer market.How can firms efficiently utilize these new extended warranties to maximize their own profits? This represents a significant challenge that numerous durable goods firms urgently need to address.Moreover,the "free replacement" extended warranty,widely adopted by businesses,deserves in-depth research.To address the aforementioned challenges,this thesis focuses on studying the operational strategy of the "free replacement" extended warranty through modeling and analytical methods.From focusing on its pricing and introduction strategies in chapter3,to studying its optimal sales methods in chapter 4 and sales channel selection problem in the supply chain context in chapter 5,this thesis is dedicated to proposing perfect strategies for firms to operate this extended warranty.By examining this new type of warranty,which emphasizes replacement rather than repair,the thesis aims to gain insights into its operational efficacy and strategic implications,which are presented as follows:(a)When consumers are risk averse,the cost coefficients of these two types extended warranty affect the choice of the firm’s optimal extended warranty strategy.Traditional extended warranty with high risk aversion is a dominant strategy in most cases.(b)When the product failure follows the HPP distribution and the firm provides free replacement extended warranties with a limited number of replacement times,its optimal sales method determined by the cost savings level generated by the mutual substitution of the two types of extended warranties and the unit maintenance cost of the product.Generally,mixed bundling strategy is more popular,but when the cost savings level is relatively low and the unit product maintenance cost is relatively high,firms should sell theses extended warranty separately.(c)In the context of supply chain,the manufacturer’s optimal sales channel strategy of the free replacement extended warranty is mainly affected by the fixed operating cost of selling this service directly and the channel entrance fee for selling this service in retail channel.However,consumers’ preference for extended warranty in direct channels results in different manufacturer’s tolerance for these two types of costs.