Sensitivity of Manufacturer and Buyer’s Risks for Lifetime Warranty Policies

Abstract

Lifetime warranties is becoming popular as they provide assurance to buyer for longer reliable service and greater customer peace of mind for the whole life of the product. By offering a lifetime warranty, both the manufacturer and the buyer are exposed to uncertainties and risks of warranty pricing and product performance during the lifetime of the product. This paper analyses the sensitivity of risk preferences models developed by Chattopadhyay and Rahman [1] in finding the optimal warranty price through the use of the manufacturer's utility function for manufacturer's profit and the buyer's utility function for repair cost. The sensitivity of the warranty price is analysed with numerical example with respect to the factors such as the buyer's and the manufacturer/dealer's risk preferences, buyer's anticipated and manufacturer's estimated product failure intensity, the buyer's loyalty to the original manufacturer/dealer in repairing failed product and the buyer's repair costs for unwarranted products.