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Should short warranty always be interpreted as low quality: the effect of brand advantages on warranty’s signalization

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  • Yaqi Lou
  • Zhen He
  • Yanrong Li
  • Shuguang He

Abstract

Brand and warranty information have been always been accepted as signals of unknown product quality. Given this, offering an attractive warranty is suggested as an effective competitive strategy. However, manufacturers with strong brand tend to provide the minimal industry standard warranty period in reality. This paper considers two competing manufacturers with different brand reputations selling their products through common retailer. The demand of products depends on price, brand and warranty period. A model for this problem is proposed when the manufacturers decide the warranty periods and the wholesale prices meanwhile the retailer decides the retail prices. We find that brand reputations influence all the optimal decisions of each party. We show that under certain condition, the strong brand manufacturer realises his profit maximisation by providing a shorter warranty compared to the weaker brand manufacturer. To a certain extent, this brand advantage modifies signalisation of manufacturers’ warranty. Several numerical examples and managerial insights are presented and used to illustrate the model presented in this paper.

Suggested Citation

  • Yaqi Lou & Zhen He & Yanrong Li & Shuguang He, 2019. "Should short warranty always be interpreted as low quality: the effect of brand advantages on warranty’s signalization," International Journal of Production Research, Taylor & Francis Journals, vol. 57(14), pages 4468-4479, July.
    • Handle: RePEc:taf:tprsxx:v:57:y:2019:i:14:p:4468-4479
    DOI: 10.1080/00207543.2018.1436791
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    Cited by:

    1. Kaiying Cao & Yunyi Su & Guoxin Han & Jia Wang, 2023. "Optimal maintenance service outsourcing strategy considering extended warranty service," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 44(2), pages 1344-1358, March.
    2. Munten, Pauline & Vanhamme, Joëlle, 2023. "To reduce waste, have it repaired! The quality signaling effect of product repairability," Journal of Business Research, Elsevier, vol. 156(C).
    3. 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).

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