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Optimal upgrade strategy, warranty policy and sale price for second‐hand products

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  • Mahmood Shafiee
  • Stefanka Chukova

Abstract

To attract more consumers and increase the number of sales, dealers need to determine optimal marketing strategies (such as warranty policy and sale price) and engineering decisions (such as upgrade and maintenance strategies) for their second‐hand products. Applying an upgrade action to a second‐hand item adds up to the sale price, but it improves the product reliability and can reduce the warranty servicing cost. In this paper, a three‐parameter optimization model is developed to determine the optimal upgrade strategy, warranty policy and sale price of a second‐hand product to maximize the dealer's expected profit. We provide a numerical study to illustrate our results. Also, a sensitivity analysis is conducted to evaluate the effect of model parameters on the optimal solution. Copyright © 2012 John Wiley & Sons, Ltd.

Suggested Citation

  • Mahmood Shafiee & Stefanka Chukova, 2013. "Optimal upgrade strategy, warranty policy and sale price for second‐hand products," Applied Stochastic Models in Business and Industry, John Wiley & Sons, vol. 29(2), pages 157-169, March.
    • Handle: RePEc:wly:apsmbi:v:29:y:2013:i:2:p:157-169
    DOI: 10.1002/asmb.1908
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    Cited by:

    1. Peng, Leiqing & Luo, Mengting & Guo, Yulang, 2023. "Deposit AI as the “invisible hand†to make the resale easier: A moderated mediation model," Journal of Retailing and Consumer Services, Elsevier, vol. 75(C).
    2. Enci Liu & Jie Li & Anni Zheng & Haoran Liu & Tao Jiang, 2022. "Research on the Prediction Model of the Used Car Price in View of the PSO-GRA-BP Neural Network," Sustainability, MDPI, vol. 14(15), pages 1-19, July.
    3. 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).
    4. Dai, Anshu & Wei, Guanzhou & Wang, Dongfan & He, Zhen & He, Shuguang, 2021. "The opportunity study of PM strategy for second-hand products sold with a two-dimensional warranty," Reliability Engineering and System Safety, Elsevier, vol. 214(C).
    5. Chun Su & Xiaolin Wang, 2014. "Optimizing upgrade level and preventive maintenance policy for second-hand products sold with warranty," Journal of Risk and Reliability, , vol. 228(5), pages 518-528, October.
    6. Esmat Baghdadi & Mahmood Shafiee & Babakalli Alkali, 2022. "Upgrading Strategy, Warranty Policy and Pricing Decisions for Remanufactured Products Sold with Two-Dimensional Warranty," Sustainability, MDPI, vol. 14(12), pages 1-15, June.

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