JOINT DETERMINATION OF PRICE, WAR RANTY LENGTH AND PRODUCTION QUANTITY FOR NEW PRODUCTS UNDER FREE RENEWAL WARRANTY POLICY

Abstract

An optimal business strategy which integrates the decisions, such as pricing, production quantity, and custom er service, in or der to maximize profit is vital for any manufacturing industry. Post sale factors like warranty, spare parts availability, maintenance, service and cost play an important role in the sale of a product. As better warranty signals higher product quality which provides greater assurance to customers, warranty is an important factor in marketing new products. In this paper, a decision model with the price, warranty length and production quantity of a product as decision variables to maximize profit based on the pre-determined product life cycle is presented. The study considers free renewal warranty policy for producers in the static sales market. The expected number of renewals based on the warranty length is derived for lognormally distributed products. The effect of model parameters on the profit is studied.

Keywords

• Price
• Warranty length
• Produc tion quantity
• Free Renewal Warranty
• Profit maximization