Warranty Policies: Consumer Value Versus Manufacturer Costs.
Abstract
A warranty is a contractual obligation incurred by a manufacturer or vendor in connection with the sale of an item or service. A typical warranty specifies that the manufacturer agrees to remedy certain defects or failures, in the commodity sold, within a predetermined time span and at a particular cost to the consumer. This study considered full and limited warranty policies from both the consumers' and manufacturers' point of view. The consumers' expected cost over a given time horizon is calculated for the various policies. Using these values, the additional cost the consumer should be willing to pay for a given warranty is found. To the manufacturer, profit is the most important consideration. In view of this, the expected profit per customer per unit time is calculated for each policy so that the manufacturer can set prices accordingly. The analysis is extended to include the manufacturers' option of repairing an item in lieu of replacing it. Conditions are derived which ensure the existence of an optional 'switching time' or time after which the manufacturer should repair instead of replace. Many of the results are derived by the use of renewal equations and delayed renewal equations. In each case a probability distribution function is assumed to govern the life length of the item. (Author)
Document Details
- Document Type
- Technical Report
- Publication Date
- Apr 28, 1981
- Accession Number
- ADA102165
Entities
People
- Frederick M. Biedenweg
Organizations
- Stanford University