Research On Extended-Combination Warranty Strategy Based On Consumers Differentiation

Warranty is an important service in life nowadays,consumers with warranties can reduce the monetary loss caused by products failure.Extended warranty is a paid service with option to purchase for consumers,can protect the interests of consumers effectively while open up new profit space for extended warranty providers.In the providers' point of view,how to set a reasonable extended warranty policies to maximize their own profits related to business operations,taking into account the heterogeneity of the consumers in market has great influence on an extended warranty policy and profits of manufacturers,consumers' demand is diversified,single extended warranty policy seems difficult to meet consumers' needs,develop an extended warranty menu can eliminate the problem of adverse selection in the market,as well as bring more profits for extended warranty providers.Three aspects related research have been summarized:warranty,combination warranty and extended warranty;consumer appetite for risk and utility;price discrimination and contracts design.Based on the existing research,under combination warranty of free and pro-rata warranty,this article studies how to design extended warranty strategy,make extended warranty price and a time threshold between free and pro-rata warranty as designed elements,consider differentiation of two consumer characteristics:consumers intensity of use and risk aversion degree to design a extended warranty menu.The article consider consumers segments in the market according to their intensity of use firstly,from the aspect of a discrete consumer type,use agency theory to build the objective function of maximize profit of extended warranty providers,participation constraints of meet consumer reserved surplus,incentive compatibility conditions of consumers will choose optimal strategy this basic model and solve;and then consider consumers segments in the market according to their risk aversion degree,from the aspect of a continuous consumer type,to build principal-agent model and solve as well.Through a numerical example to validate the validity and conclusions' correctness of the model,analysis change of consumers use intensity and risk aversion degree on the impact of an extended warranty strategy and providers' profit,found that the higher use intensity and more risk aversion of consumers,the longer free replacement repair period should be set by providers,while the price of an extended warranty should be higher,the extended warranty providers can get more generous profits basically.