IDEAS home Printed from https://ideas.repec.org/a/eee/reensy/v210y2021ics0951832021000776.html
   My bibliography  Save this article

Dynamic pricing of two-dimensional extended warranty considering the impacts of product price fluctuations and repair learning

Author

Listed:
  • Wang, Dongfan
  • He, Zhen
  • He, Shuguang
  • Zhang, Zhaomin
  • Zhang, Yiwen

Abstract

Product prices fluctuate dynamically with changes in market supply and demand. This poses a dilemma for dealers, that is, dealers need to establish a dynamic extended warranty (EW) pricing strategy based on the fluctuations in product prices to attract consumers. To address this challenging issue, we establish a dynamic integration model to derive optimal product prices and two-dimensional (2D) EW prices in a multistage dynamic market environment to maximize the dealer’s expected discounted profit during the product life cycle. In order to explore the dynamic influence mechanism between reliability engineering factors and market elements, this model combines the warranty cost model influenced by reliability related repair learning characteristics and the 2D EW demand model influenced by product price fluctuations. The model allows dealers to identify the relationships among various factors, including repair learning characteristic, production scale effect, product cost, EW cost in product reliability level, and fluctuating product demand and EW demand in market demand level, and more important, their effects, on the dealers’ profit. The necessary optimality conditions and case study are conducted for static and dynamic markets.

Suggested Citation

  • Wang, Dongfan & He, Zhen & He, Shuguang & Zhang, Zhaomin & Zhang, Yiwen, 2021. "Dynamic pricing of two-dimensional extended warranty considering the impacts of product price fluctuations and repair learning," Reliability Engineering and System Safety, Elsevier, vol. 210(C).
    • Handle: RePEc:eee:reensy:v:210:y:2021:i:c:s0951832021000776
    DOI: 10.1016/j.ress.2021.107516
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0951832021000776
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.ress.2021.107516?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Su, Chun & Wang, Xiaolin, 2016. "A two-stage preventive maintenance optimization model incorporating two-dimensional extended warranty," Reliability Engineering and System Safety, Elsevier, vol. 155(C), pages 169-178.
    2. Zhao, Xiujie & He, Shuguang & Xie, Min, 2018. "Utilizing experimental degradation data for warranty cost optimization under imperfect repair," Reliability Engineering and System Safety, Elsevier, vol. 177(C), pages 108-119.
    3. Jianhua Ma & Xingzheng Ai & Wen Yang & Yanchun Pan, 2019. "Decentralization versus coordination in competing supply chains under retailers’ extended warranties," Annals of Operations Research, Springer, vol. 275(2), pages 485-510, April.
    4. Murthy, D. N. P. & Djamaludin, I., 2002. "New product warranty: A literature review," International Journal of Production Economics, Elsevier, vol. 79(3), pages 231-260, October.
    5. Tarakci, Hakan & Tang, Kwei & Teyarachakul, Sunantha, 2009. "Learning effects on maintenance outsourcing," European Journal of Operational Research, Elsevier, vol. 192(1), pages 138-150, January.
    6. Wang, Yukun & Liu, Yiliu & Liu, Zixian & Li, Xiaopeng, 2017. "On reliability improvement program for second-hand products sold with a two-dimensional warranty," Reliability Engineering and System Safety, Elsevier, vol. 167(C), pages 452-463.
    7. Kunpeng Li & Suman Mallik & Dilip Chhajed, 2012. "Design of Extended Warranties in Supply Chains under Additive Demand," Production and Operations Management, Production and Operations Management Society, vol. 21(4), pages 730-746, July.
    8. Theodore S. Glickman & Paul D. Berger, 1976. "Optimal Price and Protection Period Decisions for a Product Under Warranty," Management Science, INFORMS, vol. 22(12), pages 1381-1390, August.
    9. Bouguerra, Soumaya & Chelbi, Anis & Rezg, Nidhal, 2012. "A decision model for adopting an extended warranty under different maintenance policies," International Journal of Production Economics, Elsevier, vol. 135(2), pages 840-849.
    10. Jaiwook Baik & D.N. Prabhakar Murthy, 2008. "Reliability assessment based on two-dimensional warranty data and an accelerated failure time model," International Journal of Reliability and Safety, Inderscience Enterprises Ltd, vol. 2(3), pages 190-208.
    11. Bermawi P. Iskandar & Nat Jack, 2011. "Warranty Servicing with Imperfect Repair for Products Sold with a Two-Dimensional Warranty," Springer Series in Reliability Engineering, in: Lotfi Tadj & M.-Salah Ouali & Soumaya Yacout & Daoud Ait-Kadi (ed.), Replacement Models with Minimal Repair, pages 163-175, Springer.
    12. Chen, Xu & Li, Ling & Zhou, Ming, 2012. "Manufacturer's pricing strategy for supply chain with warranty period-dependent demand," Omega, Elsevier, vol. 40(6), pages 807-816.
    13. Ye, Zhi-Sheng & Murthy, D.N. Pra, 2016. "Warranty menu design for a two-dimensional warranty," Reliability Engineering and System Safety, Elsevier, vol. 155(C), pages 21-29.
    14. Tsan-Ming Choi & T. C. E. Cheng & Xiande Zhao & Xiang Li & Yongjian Li & Xiaoqiang Cai & Jun Shan, 2016. "Service Channel Choice for Supply Chain: Who is Better Off by Undertaking the Service?," Production and Operations Management, Production and Operations Management Society, vol. 25(3), pages 516-534, March.
    15. Lei, Yong & Liu, Qian & Shum, Stephen, 2017. "Warranty pricing with consumer learning," European Journal of Operational Research, Elsevier, vol. 263(2), pages 596-610.
    16. Yu-Chung Tsao & Wei-Guang Teng & Ruey-Shii Chen & Wang-Ying Chou, 2014. "Pricing and inventory policies for Hi-tech products under replacement warranty," International Journal of Systems Science, Taylor & Francis Journals, vol. 45(6), pages 1255-1267, June.
    17. D.N.Prabhakar Murthy & Nat Jack, 2014. "Extended Warranties, Maintenance Service and Lease Contracts," Springer Series in Reliability Engineering, Springer, edition 127, number 978-1-4471-6440-1, September.
    18. Darghouth, M.N. & Ait-kadi, D. & Chelbi, A., 2017. "Joint optimization of design, warranty and price for products sold with maintenance service contracts," Reliability Engineering and System Safety, Elsevier, vol. 165(C), pages 197-208.
    19. Bruce Robinson & Chet Lakhani, 1975. "Dynamic Price Models for New-Product Planning," Management Science, INFORMS, vol. 21(10), pages 1113-1122, June.
    20. P C Yang & H M Wee & J C P Yu, 2007. "Collaborative pricing and replenishment policy for hi-tech industry," Journal of the Operational Research Society, Palgrave Macmillan;The OR Society, vol. 58(7), pages 894-900, July.
    21. Afsahi, Mohsen & Shafiee, Mahmood, 2020. "A stochastic simulation-optimization model for base-warranty and extended-warranty decision-making of under- and out-of-warranty products," Reliability Engineering and System Safety, Elsevier, vol. 197(C).
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Zhu, Ying & Xia, Tangbin & Chen, Zhen & Pan, Ershun & Xi, Lifeng, 2022. "Optimal maintenance service strategy for OEM entering competitive MRO market under opposite patterns," Reliability Engineering and System Safety, Elsevier, vol. 217(C).
    2. Gupta, Sanjib Kumar & Bhattacharya, Debasis, 2022. "Non-parametric estimation of bivariate reliability from incomplete two-dimensional warranty data," Reliability Engineering and System Safety, Elsevier, vol. 222(C).
    3. Li, Ting & He, Shuguang & Zhao, Xiujie, 2022. "Optimal warranty policy design for deteriorating products with random failure threshold," Reliability Engineering and System Safety, Elsevier, vol. 218(PA).
    4. Huang, Yeu-Shiang & Fang, Chih-Chiang & Lu, Chang-Ming & (Bill) Tseng, Tzu-Liang, 2022. "Optimal Warranty Policy for Consumer Electronics with Dependent Competing Failure Processes," Reliability Engineering and System Safety, Elsevier, vol. 222(C).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Xiaolin Wang & Wei Xie, 2018. "Two-dimensional warranty: A literature review," Journal of Risk and Reliability, , vol. 232(3), pages 284-307, June.
    2. Afsahi, Mohsen & Shafiee, Mahmood, 2020. "A stochastic simulation-optimization model for base-warranty and extended-warranty decision-making of under- and out-of-warranty products," Reliability Engineering and System Safety, Elsevier, vol. 197(C).
    3. Wang, Xiaolin & Li, Lishuai & Xie, Min, 2020. "An unpunctual preventive maintenance policy under two-dimensional warranty," European Journal of Operational Research, Elsevier, vol. 282(1), pages 304-318.
    4. Zhu, Xiaoyan & Jiao, Can & Yuan, Tao, 2019. "Optimal decisions on product reliability, sales and promotion under nonrenewable warranties," Reliability Engineering and System Safety, Elsevier, vol. 192(C).
    5. Wang, Xiaolin & Zhao, Xiujie & Liu, Bin, 2020. "Design and pricing of extended warranty menus based on the multinomial logit choice model," European Journal of Operational Research, Elsevier, vol. 287(1), pages 237-250.
    6. Lianmin Zhang & Lei Guan & Daniel Zhuoyu Long & Houcai Shen & Huajun Tang, 2023. "Who is better off by selling extended warranties in the supply chain: the manufacturer, the retailer, or both?," Annals of Operations Research, Springer, vol. 328(2), pages 1557-1583, September.
    7. Anshu Dai & Guanzhou Wei & Zhaomin Zhang & Shuguang He, 2020. "Design of a flexible preventive maintenance strategy for two-dimensional warranted products," Journal of Risk and Reliability, , vol. 234(1), pages 74-87, February.
    8. Wang, Xiaolin & Liu, Bin & Zhao, Xiujie, 2021. "A performance-based warranty for products subject to competing hard and soft failures," International Journal of Production Economics, Elsevier, vol. 233(C).
    9. Darghouth, M.N. & Ait-kadi, D. & Chelbi, A., 2017. "Joint optimization of design, warranty and price for products sold with maintenance service contracts," Reliability Engineering and System Safety, Elsevier, vol. 165(C), pages 197-208.
    10. Hooti, Fatemeh & Ahmadi, Jafar & Longobardi, Maria, 2020. "Optimal extended warranty length with limited number of repairs in the warranty period," Reliability Engineering and System Safety, Elsevier, vol. 203(C).
    11. Zhang, Zhichao & Xu, Haiyan & Zhao, Yingxue & Liu, Zhi & Chen, Kebing, 2023. "Extended warranty service provision: A strategic analysis for the E-commerce platform supply chain," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 177(C).
    12. Fang, Chih-Chiang, 2020. "Optimal price and warranty decision for durable products in a competitive duopoly market," Reliability Engineering and System Safety, Elsevier, vol. 203(C).
    13. Wang, Yukun & Liu, Yiliu & Li, Xiaopeng & Chen, Junyan, 2019. "Multi-phase reliability growth test planning for repairable products sold with a two-dimensional warranty," Reliability Engineering and System Safety, Elsevier, vol. 189(C), pages 315-326.
    14. Wei Xie, 2017. "Optimal pricing and two-dimensional warranty policies for a new product," International Journal of Production Research, Taylor & Francis Journals, vol. 55(22), pages 6857-6870, November.
    15. Chun Su & Longfei Cheng, 2018. "An availability-based warranty policy considering preventive maintenance and learning effects," Journal of Risk and Reliability, , vol. 232(6), pages 576-586, December.
    16. Rui Zheng & Chun Su & Yuqiao Zheng, 2020. "Two-stage flexible warranty decision-making considering downtime loss," Journal of Risk and Reliability, , vol. 234(3), pages 527-535, June.
    17. Zhang, Shuguang & Dan, Bin & Zhou, Maosen, 2019. "After-sale service deployment and information sharing in a supply chain under demand uncertainty," European Journal of Operational Research, Elsevier, vol. 279(2), pages 351-363.
    18. Huang, Hongfu & Liu, Feng & Zhang, Peng, 2021. "To outsource or not to outsource? Warranty service provision strategies considering competition, costs and reliability," International Journal of Production Economics, Elsevier, vol. 242(C).
    19. Luo, Ming & Wu, Shaomin, 2019. "A comprehensive analysis of warranty claims and optimal policies," European Journal of Operational Research, Elsevier, vol. 276(1), pages 144-159.
    20. Dai, Anshu & Wang, Xin & Li, Yu & Li, Ting & He, Shuguang, 2023. "Design of a performance-based warranty policy with replacement–repair strategy and cumulative cost threshold," International Journal of Production Economics, Elsevier, vol. 255(C).

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:reensy:v:210:y:2021:i:c:s0951832021000776. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: https://www.journals.elsevier.com/reliability-engineering-and-system-safety .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.