Offering a model for determination of optimal warranty period and production price

Nowadays warranty is an important element in marketing, especially for the products that enter the market for the first time. Usually customers do not have enough information about productions efficiency, in such conditions; warranty plays a significant role in persuading customers to buy the products. As customer’s point of view, warranty is a sign of quality and reliability and when customers have different choices among the similar products, warranty will be an effective factor in decision making. Also warranty, as a means of marketing, has positive effects on manufacturer’s sales and profit but in the other hand, it imposes some costs to the manufacturers. As failures occur randomly, calculation of warranty costs is complicated but estimation of these costs is essential cause of their effects on profit. This paper tries to offer a model for determination of optimal warranty period and production price in regards to effects of warranty on sales amount. For achieving this purpose a model that is included of three warranties polices, which was offered by Murthy, is used and it is optimized by Glickman and Berger equation and at the end an application of the model is explained.

Warranty, Warranty Policy, Free Repair/Replacement warranty (RFRW), Pro Rata Warranty (RRW)