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Integrated Pricing and Inventory Decisions for Product Quality-Driven Extended Warranty Services

Author

Listed:
  • Wendi Zha

    (School of Management Science and Engineering, Nanjing University of Information Science & Technology, Nanjing 210044, China)

  • Zhenyong Wu

    (School of Management Science and Engineering, Nanjing University of Information Science & Technology, Nanjing 210044, China)

  • Jianxin Tan

    (School of Management Science and Engineering, Nanjing University of Information Science & Technology, Nanjing 210044, China)

  • Yiming Chen

    (School of Management Science and Engineering, Nanjing University of Information Science & Technology, Nanjing 210044, China)

  • Yaping Fu

    (School of Business, Qingdao University, Qingdao 266071, China)

  • Zhitao Xu

    (College of Economics and Management, Nanjing University of Aeronautics and Astronautics, Nanjing 211106, China)

Abstract

Extended warranty services have become increasingly important for both manufacturers and retailers, offering avenues for new profit sources and growth opportunities. Focusing on the multiple effects of product quality, this study develops a two-period supply chain decision model to analyze the effects of product quality, pricing, and inventory management in the context of extended warranty services. Using a Stackelberg dynamic game model, this study examines the interaction between a manufacturer and a dominant retailer who provides extended warranties. The results indicate significant differences in optimal decisions between centralized and decentralized supply chains, especially concerning pricing and inventory control. Introducing a “quality cost-sharing” contract enhances product quality and improves coordination, leading to increased profits for both the manufacturer and the retailer. Numerical simulations confirm that the cost-sharing contract effectively balances product quality improvements with supply chain profitability.

Suggested Citation

  • Wendi Zha & Zhenyong Wu & Jianxin Tan & Yiming Chen & Yaping Fu & Zhitao Xu, 2024. "Integrated Pricing and Inventory Decisions for Product Quality-Driven Extended Warranty Services," Sustainability, MDPI, vol. 16(20), pages 1-18, October.
    • Handle: RePEc:gam:jsusta:v:16:y:2024:i:20:p:8769-:d:1496099
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    References listed on IDEAS

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    1. Zhuojun Liu & Jing Chen & Claver Diallo & Uday Venkatadri, 2023. "Optimal extended warranty pricing and retailing strategies in a closed-loop supply chain," International Journal of Production Research, Taylor & Francis Journals, vol. 61(10), pages 3435-3458, May.
    2. Ma, Junhai & Si, Fengshan & Zhang, Qin & Wang, Zongxian, 2024. "Impact of extended warranty service on product pricing in online direct retailers' competitive market," Energy Economics, Elsevier, vol. 129(C).
    3. Wang, Yuyan & Yu, Zhaoqing & Jin, Mingzhou & Mao, Jiafu, 2021. "Decisions and coordination of retailer-led low-carbon supply chain under altruistic preference," European Journal of Operational Research, Elsevier, vol. 293(3), pages 910-925.
    4. Barry Alan Pasternack, 2008. "Optimal Pricing and Return Policies for Perishable Commodities," Marketing Science, INFORMS, vol. 27(1), pages 133-140, 01-02.
    5. Liu, Bin & Shen, Lijuan & Xu, Jianyu & Zhao, Xiujie, 2020. "A complimentary extended warranty: Profit analysis and pricing strategy," International Journal of Production Economics, Elsevier, vol. 229(C).
    6. Barry Alan Pasternack, 2008. "Commentary—Optimal Pricing and Return Policies for Perishable Commodities," Marketing Science, INFORMS, vol. 27(1), pages 131-132, 01-02.
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    Cited by:

    1. Zhou, Xingjian & Feng, Yan & Chen, Hongming & Cai, Lihua & Bashkarev, Vladimir, 2025. "Pricing strategy of supply chain considering response time of extended warranty service," Operations Research Perspectives, Elsevier, vol. 14(C).

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